Snapshot Summary…

Global FX: The dollar rose to a 3-month high on the back of strong inflation data

Global Rates: US Treasuries weakened with the 10Y UST up 14 bps as players reacted to the US CPI reading

MYR Bonds: Government bonds reopened after the long weekend to a cautious trading session ahead of the eagerly awaited US inflation release

USD/MYR: The ringgit was relatively stable as it was barely changed near the 4.760 level

Macro News

US: US total CPI rose 0.3% m/m in January (consensus 0.2%) and increasing a downward revised 0.2% (from 0.3%) in December. Core CPI, which excludes food and energy, rose 0.4% m/m (consensus 0.3%) after increasing 0.3% in December. On a y/y basis, total CPI rose 3.1% versus 3.4% y/y in December while core CPI rose 3.9% y/y versus 3.9% in December. The upbeat CPI provide the Fed officials an argument to maintain their hawkish bias and delay discussions of when to initiate its first rate cut.

Japan: Japan reported its January PPI was unchanged on m/m basis (expected 0.1%; December 0.3%) but rising 0.2% y/y (expected 0.1%; December 0.2%). Aside, the January Machine Tool Orders fell a larger 14.1% y/y (December -9.6%).

Fixed Income

Global bonds: US Treasuries weakened with the 10Y UST up a large 14 bps to close at 4.31% while the 2Y UST shot up 18 bps to 4.66% as players reacted to the US CPI reading. With Asia trading lacking interest amid the Lunar New Year holiday there was little else to drive UST sentiment, and in our opinion left the yield rise relatively unchecked.

MYR Government Bonds: The government bond market reopened after the long weekend to a cautious trading session which came ahead of an eagerly awaited US CPI data release. Most MGS benchmark papers closed within a tight range. The 10Y MGS rose 1 bp to close at 3.81% which after last night’s UST movement is 50 bps below the 10Y UST versus 37 bps the day before. Aside, last Friday we saw details for 20Y GII (GII 08/43) reopening. There will be MYR3.0 billion for the public tender and MYR2.0 billion private placement. Closing date is 15 February.

MYR Corporate Bonds: There continued to be a lack of trading interest in the corporate bond space yesterday. Meanwhile, yield movements were mixed. Notable trades include some bank names such as 10/28 BSN (AAA) at 3.88% which rose 3 bps. We also noted debut of 02/29 UEMS at 4.41%

Forex

United States: The dollar rose to a 3-month high, pushed up by the release of strong January US CPI and core CPI figures. The dollar index rose 0.8% to close at 104.96 and we think traders see that inflation remained relatively low but a slowdown in price appreciation is slower than expected, thus providing a way for the Fed to delay the start of its rate cut cycle.

Europe: The EUR and GBP both lost out against the firm USD. EUR fell 0.6% and the GBP fell by 0.3%. There was added caution for the GBP ahead of incoming UK data including inflation and GDP. Consensus for CPI is a 0.3% m/m decline in January versus a 0.4% rise in the month before.

Asia-Pacific: The firm USD was especially noted against the JPY where the USD/JPY rose 1.0% overnight to settle above the 150 level. Japan did not receive boost from data, where it reported yesterday that the January PPI was unchanged on m/m basis (December 0.3%) but rising 0.2% y/y (December 0.2%). Meanwhile, the AUD also saw notable pressure as it fell 1.2% versus the USD. Mixed data provided little support; Australia’s consumer confidence climbed to a 20-month high in February whilst inflation has eased and thus paring expectations of more RBA tightening.

Malaysia: The ringgit was relatively stable as it was barely changed yesterday to close at 4.763. Trading was cautious ahead of the US CPI release yesterday.

Other Markets

Gold: On the back of the strong USD and rise in global bond yields, gold stumbled, down by 1.3% overnight.

Crude oil: Crude oil prices continued to rise alongside sustained concerns over geopolitics. Both Brent and the WTI surge by about 1% but there was some paring down of the price appreciation as US CPI release further reduced expectations of quicker-than-expected Fed rate cuts.

Source: AmInvest Research - 14 Feb 2024