Fixed Income

Global bonds : UST yields surged after print of solid non-farm payrolls numbers. Nevertheless, UST gains for the week were sustained after earlier safe-haven demand amid growth risks, despite the Fed signalling it was far from a rate cut decision at last week’s FOMC meeting. In particular, the market was focused on US banking sector concerns and their exposure to real estate. Bloomberg’s WIRP tool places the probability of a rate cut by March at 19.3% probability and a May cut at 82.6% probability (down from 37.8% and 96.9% pre-NFP release). On Friday, the 10Y UST rose by 14 bps but was down 12 bps for the week.

MYR Government Bonds: Ringgit government bonds closed firm last week, before the NFP release and Friday's UST yield surge. MGS market generally followed UST strength heading towards the NFP release.

MYR Government Bonds View: Anticipate a risk on movement in global markets this week. However, global sovereign bonds may be held back, given the UST yield surge post-NFP. Nevertheless, MGS could benefit from flows to EM markets if players load their portfolios with bonds before the Lunar New Year break. In any case, we think the 10Y MGS has support at 3.81% and onto 3.86% (the YTD high) in the short term.

MYR Corporate Bonds: In the Ringgit credit space, net buying interest still dominated trading, and we note that official indicative PDS yields were down 3-6 bps in the past week.

MYR Corporate Bonds View: PDS support should be coming this week from 1) firm risk appetite post-NFP and 2) investors loading up papers ahead of the long weekend. On specific AAA issuer curves, names like Pengurusan Air SPV could realign further -- its 02/33 is lagging behind other 2031-2034 tranches (Exhibit 2).

Forex

DXY Index: Stretching out Dixie’s gains for the third straight week was the late support from the blowout in labour market data, especially the JOLTs job openings, non-farm payrolls, and wage growth, where the reading was at its highest since 2022. Furthermore, another upbeat data on ISM Manufacturing PMI signals that the US economy is in better standing compared to what was initially thought alongside Fed Chair Jerome Powell’s effort to maintain a hawkish stance, nudged market players to pare their March rate cut prospects. This week, there will be less economic data to be released in the US except for the ISM Services PMI, but the focus will be more on Fed officials’ speeches.

Europe: Going against firmer dollar demand, the EUR fell 0.6% to 1.079 on the week. While the Eurozone’s GDP data showed that the region managed to circumvent a recession, sentiments favoured the USD last week. In the meantime, the GBP was also on the downside, notching down 0.6% w/w, despite the BoE’s decision to maintain its interest rate at its highest level in 16-years and dismissing any possibilities of a sooner interest rate trim.

Asia Pacific: By the end of Friday, the yen gave up its gains and closed 0.2% weaker w/w at 148.38. Data released for Japan was rather mixed, and the strength of the USD itself broadly caused the weakness in the JPY. At the same time, the yuan weakened 0.2% as well despite the PBoC’s strong fix throughout the week. The official China’s NBS Manufacturing PMI improved slightly to 49.2 for January 20024 but remained under the 50-level growth threshold for the ninth straight month if we ignore September’s decent above 50-level performance. This suggests that the Chinese economic recovery continues to be repressed amidst property slump and subdued consumer demand. Further south, the AUD dropped sharply by 1.0% on the week while the NZD shed only by 0.4%. These commoditieslinked currencies were pressured by the risk aversion mode following robust US labour market US data. The fall also aligned with the drop in Brent's oil benchmark price (-7.4% w/w). Domestically, slower inflation growth in Australia pressured the currency more as traders may soon see the RBA trim its restrictive policy. In Singapore, the SGD depreciated only by a slight 0.1%. On the data front, business confidence for manufacturers in Singapore rose to 10 during 4Q2023 from 7 in the prior quarter, which marked the strongest reading since 3Q2021.

Malaysia: The ringgit managed to hold up against a firmer dollar ahead of the NFP data on Friday night amidst a shorter working week. The currency found support from the improvement in S&P Global Manufacturing PMI at 49, the highest level since October 2022, but remained in the contraction zone for the 17thstraight month. It suggests a pickup in the manufacturing sector amidst rebounding global trade. There are a few critical data relating to Malaysia’s economic prospects this week, including industrial production (Wednesday), retail sales (Thursday), and unemployment rate (Friday).

Source: AmInvest Research - 6 Feb 2024