Snapshot Summary…

Global FX: The DXY fell after it hit a two-months high recently, alongside the weaker GBP. Meanwhile, the EUR rose marginally

Global Rates: UST, Bund and Gilt Market Closed Stronger and Pared Weekly Losses

MYR Bonds: Most of MGS Benchmark Papers Strengthened With Yields Falling 2-4 Bps

USD/MYR: Malaysian ringgit strengthened in tandem with yuan and regional currencies’ better performance

Macro News

Euro Area: The Euro Area's consumer price inflation rate remained at 5.3% for July 2023, the lowest since January 2022. The decline was mainly attributed to lower energy prices and eased costs for alcohol, tobacco, and non-energy industrial goods. However, services inflation slightly increased to 5.6%. Core inflation, which excludes certain items, was unchanged at 5.5%, surpassing the headline rate for the first time since 2021.

Japan: In July 2023, Japan's annual inflation rate remained steady at 3.3%, surpassing market predictions of 2.5%. Various categories experienced price increases, including food, housing, transport, furniture, clothing, medical care, education, culture, and recreation. However, fuel, light, and water charges continued to decline, with electricity costs notably dropping. Core inflation eased to 3.1%, a 4- month low.

Malaysia: Latest GDP came in at 2.9% in 2Q2023. The slower growth number was mainly due to export contraction and slower private consumption growth. Gross exports, which contributes to 74.6% to the economy declined by 9.4% (1Q2023: -3.3% y/y), and gross imports also declined by 9.7% y/y (1Q2023: -6.5% y/y). Latest trade numbers for July 2023 declined by 14.4% y/y (June 2023: -16.2% y/y) to RM7.9 billion, with exports falling by 13.1% y/y (June 2023: 14.1%) to RM116.8 billion, and imports declined by 15.9% y/y (June 2023: 18.7% y/y) to RM99.7 billion.

Fixed Income

Global bonds: US Treasuries rallied last Friday thus paring their weekly loss. On Friday, the 10Y UST shed 2 bps to 4.25% and is up 8 bps for the week. After recent weakness on the back of expectations for Fed’s higher for longer interest rates, Friday’s gains were driven by safe haven demand, specifically ongoing worries over China’s growth and credit outlook. Eurozone July CPI at -0.1% m/m and core CPI - 0.1% m/m were left unrevised in their final readings. The 10Y Bund fell 9 bps Friday to 2.62%, coming down from the past week high of 2.72%. 10Y Gilts shed 7 bps to 4.68% Friday. UK’s July retail sales fell 1.2% m/m (consensus: -0.5%; June: 0.6%). In Japan, July National CPI beat expectations at 3.3% y/y (expected 2.5%; June: 3.3%). Core CPI was 3.1% y/y as expected (June: 3.3%).

MYR Government Bonds: MGS benchmark papers up to 15Y maturities strengthened with yields falling 2-4 bps. Friday’s MGS gains were alongside the release of weaker than expected 2Q2023 GDP data. The reopening auction of the 20Y GII 08/43 was announced with an auction size of RM3.0 billion and another RM2.0 billion for private placement. WI was last quoted 4.255-4.200 with nothing done.

MYR Corporate Bonds: Malaysian credits were dealt firmer to end the week. Traded volume totalled RM354 million vs RM496 million during the previous day. Heavily traded include AAA Infracap 04/33 at 4.28% on MYR30 million and AAA MAHB 11/27 at 3.96% on MYR30 million flows.

Forex

US: On Friday, the DXY fell 0.2% to 103.38, retreating from the recent two-months high, but chalked up weekly gains on the back of worries of “higher-for-longer” US Fed narratives and safe haven demand over China worries.

Europe: Meanwhile, the EUR managed to post marginal gains as it closed on Friday at 1.087 or 0.01% higher. The final Eurozone’s inflation figure underpins the need for the ECB to continue fighting inflation with core inflation remains unchanged at 5.5% y/y, not far from the record high 5.7% y/y it hit in March this year. On the other hand, the GBP fell 0.1% to 1.273 following the weak retail sales data. This is despite the recent still-hot inflation and healthy wage growth figures released last week which put pressure on the Bank of England (BoE) to raise its interest rate higher than what was initially expected.

Asia-Pacific: Faster-than-expected Japan’s inflation growth last Friday builds more cases for the Bank of Japan (BoJ) to roll-out its super accommodative policy. It also provided some supports for the Japanese yen, strengthening 0.3% against the dollar. In China, the yuan appreciated 0.03% after it reached nine-months low recently and following the People Bank of China (PBoC) firmer yuan fix at 7.2006 vs. 7.2076 in the previous fixings. This showed that authorities do not want the yuan to fall much further against the USD amidst cloudy outlook for China’s economy and recent corporate distress.

MYR: The ringgit strengthened 0.1% d/d, in tandem with stronger Chinese yuan, to close Friday at 4.649 after having traded in the range of 4.638 and 4.652. After the disappointing 2Q2023 GDP data (2.9% y/y vs. consensus 3.3% y/y), coupled with persistent safe-haven demand towards the dollar due to China’s economic worries and “higher-for-longer” US interest rate narrative, forced us to revise our year-end USD/MYR outlook to 4.50 from the previous 4.40.

Other Markets

Gold: Gold prices dipped slightly by 0.1%, marking fifth consecutive days of falling amidst noises on US interest rate outlook.

Crude Oil: Oil price rose on Friday on tight supply worries with Brent climbing 0.8% while WTI rising 1.1%.

FBM KLCI: Malaysia's FBM KLCI fell 0.1% after the 2Q2023 GDP data. Foreign investors were net sellers of RM75.2 million shares.

US Equities: US stock market were mixed amidst a risk averse environment as most global stock markets closed lower. The Dow Jones rose 0.1% but the S&P500 dipped 0.01% and Nasdaq fell 0.2%.

Source: AmInvest Research - 21 Aug 2023