Global FX: Continued USD Strength Was Seen as the DXY Tested the 105 Level and UST yields at 1-year highs

Global Rates: ISM Services PMI up further to 54.5 in August while surge in global crude oil prices left the US Treasuries market to continue to weaken

MYR Bonds: Cautious activity continued yesterday, ahead of today’s MPC meeting with traded volume decent at MYR1.6 billion

USD/MYR: MYR Trading Remained Cautious Ahead of MPC

Macro News

United States: The US trade deficit expanded to USD65 billion in July 2023. This increase was driven by a 1.6% rise in exports, notably in vehicles, gold, crude oil, and pharmaceuticals. Imports also increased by 1.7%, with gains in cell phones, pharmaceuticals, semiconductors, and crude oil. The trade deficit with China grew by USD1.2 billion, while the surplus with Hong Kong decreased by USD1.0 billion, and the balance with the UK shifted to a surplus of USD0.5 billion.

Euro Area: Retail sales in the Euro Area fell by 0.2% m/m in July 2023, with a notable decline in automotive fuel sales due to rising prices. However, sales of food, drinks, and tobacco increased by 0.4%, and non-food products saw a 0.5% rise for the fourth consecutive month. On year-on-year, retail sales were down by 1.0% for the tenth consecutive month. Online trade also grew, with a 3.8% increase compared to June's 1.5%.

Australia: In the 2Q2023, the Australian economy grew by 0.4% quarter-on-quarter, driven by net trade, fixed investment, and government spending, but household consumption was subdued due to higher interest rates. This marked the seventh consecutive period of economic growth, with exports rising more than imports. However, the year-on-year growth rate slowed to 2.1% from 2.4% in the previous quarter.

Fixed Income

Global bonds: The ISM Services PMI rose further to 54.5 in August (consensus was about 52.5) from 52.7 in July. Meanwhile, global crude oil prices continued to increase. That left the US Treasuries market to continue to weaken. The Fed's Beige Book for August indicated that the overall growth as modest though retail spending slowed. The final reading of the S&P Global Services PMI fell to 50.5 for August from 51.0 preliminary reading. July's final level was 52.3. In Europe, ECB Villeroy de Galhau said, though economy is slowing down, there is still no anticipated recession, thus the lowering of inflation should remain the priority. The 10Y Treasury bond rose to a 2- week high of around 4.30%.

MYR Government Bonds: Even as UST yields surged the day before the cautious activity continued in the MGS market yesterday, ahead of today’s MPC meeting. Traded volume was decent at MYR1.6 billion. Yields along benchmark papers barely moved. The 3Y MGS remained at 3.48%, or 48 bps above the OPR, which is a wide spread in our opinion but reflects the downbeat global bond markets with UST yields at 1-year highs.

MYR Corporate Bonds: Traded volume along the corporate bond market was MYR1.2 billion yesterday while net buying continued, indicating that risk appetite remained healthy. Notable trades include AAA rated Bank Pembangunan 11/35 at 4.38% (-3 bps) on MYR120 million volume. Also, AAA Sarawak Energy was dealt at 4.14% (-1 bp) on MYR80 million flows.

Forex

US: Continued USD strength was seen as the DXY touched intraday high of 104.98. Concerns over global growth persisted, which aided safe haven demand for the USD. The release of strong ISM non-manufacturing index in the US boosted USD as well. DXY index moved 0.1% to 104.86 for the day. In Fed-speak, Boston Fed’s Susan M. Collins (non-voter) said the central bank need to be patient when deciding the path of monetary policy but also stressed on the Fed’s commitment to direct inflation lower to its 2% target.

Europe: EUR and GBP were pressured as USD strengthened. In data releases, Eurozone's July retail sales fell 0.2% m/m (consensus: -0.1%; June: 0.2%), as well as down 1.0% y/y (consensus: -1.2%; June: -1.0%). Germany's July Factory Orders fell 11.7% m/m (consensus: -4.0%; June: 7.6%). EUR closed little changed at 1.073 while GBP fell 0.5% to 1.251. BoE’s Governor Andrew Bailey spoke before parliament’s Treasury Committee, commenting that the BOE is near the top of higher interest rates cycle, adding that inflation is indeed coming down.

Asia-Pacific: The Chinese yuan reached 10-months lows before paring losses. Reuters reported that major state-owned banks were mopping up yuan liquidity in the offshore market and actively selling USD onshore in early trades. AUD posted modest gains. Australia's 2Q2023 GDP grew 0.4% q/q (expected: 0.3%; previous quarter: 0.4%), as well as growing 2.1% y/y (expected: 1.8%; last: 2.4%)

MYR: Ringgit Weakened Amid Concerns Over Global Growth. MYR Trading Was Also Cautious Ahead of MPC.

Other Markets

Gold: Gold Closed Lower as Upbeat US Economic Suggest 'higher for Longer' Interest Rates.

Crude Oil: Due to planned output cuts, global crude oil rose further. Brent was seen 0.6% higher yesterday at USD90.60 per barrel.

FBM KLCI: Bursa Malaysia closed firmer yesterday, aided by bargain-hunting interest in financial and energy shares despite a mixed performance in regional markets. The FBM KLCI index rose 0.4% to 1,461. Foreign investors were strong net buyers of MYR95.6 million yesterday.

US Equities: US stocks posted losses with the Nasdaq composite down 1% amid concerns over another Fed hike as crude prices rose further.

Source: AmInvest Research - 7 Sept 2023