Snapshot Summary…

Global FX: The USD rose from weekly lows as PCE inflation met expectations at +0.2% m/m

Global Rates: Another day of rally seen in the global bond markets as growth concerns set in

MYR Bonds: Ringgit bonds closed firmer but profit takers emerged ahead of Merdeka Holiday

USD/MYR: The ringgit strengthened against the USD ahead of holiday and on suspected lower dollar holdings

Macro News

United States: In July 2023, core PCE prices increased by 0.2% m/m, the same pace as June and in line with market predictions. The annual rate, a key measure of inflation for the Federal Reserve, rose slightly to 4.2% from June's 4.1%, also in line with market expectations.

Japan: Retail sales in Japan grew by 6.8% y/y in July 2023, marking the 17th consecutive month of expansion, and faster than previous month of 5.6%. Various industries contributed to the growth, with other retailers leading the increase at 11%, followed by automobile retailers (8.1%), food retailers (8%), and more. On a monthly basis, retail sales increased by 2.1% in July, rebounding from a 0.4% decline in June.

China: China's official NBS Manufacturing PMI increased to 49.7 in August 2023 from 49.3 in July, surpassing expectations of 49.4. This indicates the slowest decline in factory activity since a period of expansion in March. The growth was supported by stimulus measures aimed at reviving the economy. Output and new orders both expanded, with output growth reaching its highest level in five months and new orders expanding for the first time in five months.

Fixed Income

Global bonds: The UST market bull flattened on lingering safe haven bids due to growth concerns after the 2Q2023 US GDP was revised lower to 2.1% q/q from 2.4% on Wednesday. Overnight, the Fed’s key inflation measure, personal consumption expenditure (PCE) price index, inched higher to 3.3% y/y in July 2023 from 3.0% y/y in the prior month, broadly in line with market forecast. In Europe, the Bund market was bullish as well with the 10Y Bund yield dropping 8 bps to close at 2.47%. Despite the higher-than-expected reading of Eurozone headline inflation at 5.3% y/y from consensus of 5.1% y/y, the market seemed to have shifted towards growth concerns rather than inflation fighting narrative. The WIRP Bloomberg ticker indicated that the market is now pricing in around 24% probability for a rate hike during September meeting, compared to 54% pre-inflation release. At the same time, the 10Y Gilt yield fell 6 bps to settle at 4.36%, mirroring the same sentiment with its US and European peers. Investors will be on the lookout for non-farm payrolls data due tonight where the consensus is at +170K jobs against +187K actual July data.

MYR Government Bonds: On Wednesday, Ringgit bonds and IRS levels tracked the movement in the UST market from the previous session with yields seen easing by 2 – 3 bps. However, the buying momentum didn’t last as profit takers emerged to lighten up positions ahead of Merdeka Holiday and ahead of key US economic data which ncludes the jobs data on Friday. The 10Y MGS closed at 3.84% by the end of Wednesday.

MYR Corporate Bonds: The volume traded in the PDS market fell to MYR381 million from MYR538 million despite gainers outpacing losers. Among notable trades were MYR60 million on triple A-rated 01/36 PLUS which settled at 4.28% (-2 bps) and MYR25 million on AA1 rated 10/32 bank paper UOB closed at 4.14% (+35 bps).

Forex

US: The DXY index rebounded from weekly lows to close 0.4% higher at 103.62. US data on Thursday aided the index including the PCE price at +0.2% m/m in August (which met expectations and vs 0.2% prior month) and +3.3% y/y. Core PCE was in line with expectations at +0.2% m/m. However, the PCE deflator at post pandemic low of 2.1% on a 3-month annualised basis. Meanwhile, US consumer spending increased 0.8% in July and the June figures was revised higher to +0.6% from +0.5% prior estimate.

Europe: Currencies fell against the firmer dollar despite European Central Bank (ECB) officials maintaining hawkish narratives. ECB policymaker Isabel Schnabel repeated warnings of underlying price pressures, and that there is no target for a peak ECB rate. BOE chief economist Huw Pill said that policy should remain tight until core inflation slows. In data release, Eurozone's flash August CPI rose 0.6% m/m (July: -0.1%) and +5.3% y/y (July: +5.3%). Core CPI was +0.3% m/m, as expected (July: -0.1%) and +5.3% y/y, as expected (July: 5.5%).

Asia-Pacific: CNY was steady on Thursday, adding 0.4% to 7.256. Boost came from the improvement in China’s official manufacturing PMI rising to 49.7 in August from 49.3 in July. PBOC setting midpoint currency fixing at 7.1811 or 5 pips firmer than the previous day also aided CNY. However, USD was up from week’s low of 103.07 and China manufacturing PMI is still below the breakeven 50 level meant rest of Asia FX saw little support despite a steady CNY. The PBOC provided supportive measures to the property sector by saying it will allow mortgage rates to be lowered starting 25th September. Meanwhile, AUD was supported amid the CNY strength, as well as after the print of weak US data, particularly second estimate for US 2Q2023 GDP at 2.1% vs advance estimate of 2.4%.

MYR: The ringgit closed firm against the US dollar before the midweek break for the National Day, taking advantage of suspected alleviating of dollar holdings ahead of pertinent US macro data releases. USD/MYR closed stronger by 0.2% at 4.639 on Wednesday.

Other Markets

Gold: Gold prices were little changed as US PCE index came out mostly in line with expectations. Gold was 0.1% lower overnight.

Crude Oil: Crude oil received a lift amid news US commercial crude oil inventories fell by 34 million barrels since mid-July. Oil was also lifted on reports that Russia is in agreement with OPEC+ on more output restrictions, specifically cuts in exports into October after Russia has already announced cut of 300K bpd in September.

FBM KLCI: On Wednesday, Malaysia’s FBM KLCI closed 0.17% lower due to late net selling activity amid a cautious mood before US data releases this week. Foreign investors were net sellers of MYR139 million shares.

US Equities: The US stock market closed mixed as trading was cautious before today’s August non-farm payrolls release. Tech heavy Nasdaq rose 0.11% higher but S&P500 fell 0.16%.

Source: AmInvest Research - 1 Sept 2023