Snapshot Summary…

Global FX: EUR Rallied on Better-than-expected PMI Numbers

Global Rates: Key UST, Bund and Gilt Markets Rallied on Safe Haven Demand

MYR Bonds: MGS Benchmark Papers Closed Modestly Firmer Yesterday on Relatively Light Volume Traded

USD/MYR: Malaysian Ringgit Weakened Amidst Tight Trading Range

Macro News

Europe: In August 2023, the UK Services PMI fell to 48.7, showing a contraction for the first time since January. This drop is due to slow domestic economic conditions and higher borrowing costs. New orders and output declined notably, and while job creation continued, it grew slowly. Meanwhile, manufacturing PMI in Europe increased to 43.7 (July 2023: 42.7). This marks the 14th month of factory activity decline, with new orders falling notably. Output decreased for the fifth consecutive month, and employment levels slightly dropped. Purchasing inputs and raw material inventories were reduced. Slowing demand is in tandem with the decline in input prices. Manufacturers' output expectations for the future decreased for a sixth month to their lowest point since December 2022.

Japan: The Jibun Bank Japan Manufacturing PMI rose slightly to 49.7 in August 2023 from 49.6 in July, based on flash data. This reading indicates the third consecutive month of contraction in factory activity, but at a slower pace. Output, new orders, and export sales all declined, though less severely, and employment remained unchanged, ending a 28-month streak of job creation.

Australia: The Judo Bank Australia Manufacturing PMI decreased to 49.4 in August 2023 from 49.6 in July, indicating ongoing contraction in the manufacturing sector for the sixth consecutive month. This decline was driven by worsening business conditions, resulting in reduced new orders and manufacturing output. Purchasing activity also decreased.

Fixed Income

Global bonds: UST posted early gains in the morning session, which was maintained throughout the day. Bunds and gilts also gained, aided by slow risk appetite amid release of weak PMI data. The rallies were supported by continued contraction in manufacturing PMI in Japan, Australia, Germany, France, and the UK. The services PMI numbers from Germany and the UK fell into contraction. The 10Y UST shed 13 bps to 4.20%.

MYR Government Bonds: MGS benchmark papers closed modestly firmer yesterday on relatively light volume traded. Gains in longer tenor UST from the previous session supported sentiment. There was also a hint of safe haven demand after recent Malaysian economic data and fresh release of weak PMI numbers in Europe yesterday. The 10Y MGS fell 1 bp to 3.95%.

MYR Corporate Bonds: Ringgit corporate bonds closed firmer to mirror the govvies trading. Volume traded was heavy at RM821 million yesterday compared with RM511 million the day before. Some bank papers led activity; AAA rated PIBB 10/27 was dealt at 3.97% on MYR70 million volume whilst AA2 CIMB 09/32 was traded unchanged at 4.20% on MYR40 million volume.

Forex

US: Amidst August preliminary PMI data globally, lower than expected headline readings in the US for both manufacturing (47 vs. cons. 49.3) and services (51 vs. cons. 52.2) PMI sent the USD lower, erasing its early gains and closed the day at 103.42, or 0.1% lower. The Composite PMI showed near stall growth (50.4 vs. July 52) in business activity, putting doubts over the strength of US economy. Nonetheless, the losses were capped as market remained cautious ahead of Jackson Hole symposium.

Europe: Mixed movements were seen in this region where the EUR posted decent gains of 0.2% while GBP fell slightly by 0.04%. This was somewhat reflected in the diverging PMI data between Eurozone’s and UK’s. Manufacturing PMI in the Eurozone fared better at 43.7 compared to July’s data of 42.7 and market forecast of 42.6. On the other hand, UK’s manufacturing PMI fell deeper in the contraction region at 42.5 compared with July’s 45.3 and market forecast of 45.0.

Asia-Pacific: Most of Asia-Pacific’s currencies firmed led by AUD which rose 0.9% to 0.648, extending its gains for the third consecutive days despite data showed Composite PMI in Australia fell to 47.1 from 48.2 in the prior month. Slightly better PMI readings in Japan partly helped support the yen, rising 0.7% against the USD. Composite PMI in Japan rose to 52.6 from 52.2 amidst the ongoing slowing global growth. The Chinese yuan firmed 0.2% to 7.279 after the central bank set the daily fixing firmer at 7.1988 compared to previous fixing of 7.1992 and market forecast 1,000 pips weaker. However, the Korean won weakened 0.3%. South Korea’s Business Survey Index for manufacturers deteriorated to 67, the lowest point since February 2023, down from 72 in the prior month.

MYR: The ringgit depreciated 0.2% to close near its intraday high of 4.659 after it went as low as 4.651. Investors remained cautious ahead of the Jackson Hole Symposium for guidance on the US interest rate outlook.

Other Markets

Gold: As bond yields surged following the weak PMI in most of major economies cast doubts over the growth prospect, gold prices benefitted and rose 0.9% to USD1,915/oz.

Crude Oil: Concerns on China’s demand remained the main narrative as oil prices continued to be on the downside. Brent fell 1.0% to USD83 per barrel while WTI fell 1.1% to USD79 per barrel.

FBM KLCI: Malaysia's FBM KLCI dropped by 0.8% amidst cautious mode. Foreign investors remained the net sellers with RM122.9 million Malaysian shares on Wednesday.

US Equities: The US stock market closed higher with the Dow Jones rising 0.5%, the S&P500 climbing 1.1%, and the Nasdaq advancing 1.6%.

Source: AmInvest Research - 24 Aug 2023