Snapshot Summary…

Global FX: The dollar fell upon mixed tone from a couple of Fed officials

Global Rates: US Treasuries yields fell in tandem with the weaker USD

MYR Bonds: Local government yields rose 2-4 bps on the bellies to the long part of the curve following prior day’s the weak UST market

USD/MYR: The ringgit weakened by 0.5%, the largest quantum in two weeks

Macro News

Eurozone: As expected, Eurozone's 4Q2023 GDP was unchanged q/q (last -0.1%), but showing growth of 0.1% y/y(last 0.0%). 4Q2023 employment increased by 0.3% q/q, as expected (last 0.2%), but also rising 1.3% y/y (consensus 1.1%; last 1.3%). Aside, the December Industrial Production rose 2.6% m/m (consensus -0.2%; last 0.4%) and rising 1.2% y/y (consensus -4.1%; last -5.4%).

UK: UK's January CPI fell 0.6% m/m (consensus -0.3%; last 0.4%) but did rise 4.0% y/y (consensus 4.1%; last 4.0%). Meanwhile, the January Core CPI fell 0.9% m/m (consensus -0.8%; last 0.6%) but showed a rise of 5.1% y/y (consensus 5.2%; last 5.1%).

US: The final producer price inflation figure in the US was revised to show further contraction of 0.2% m/m in December 2023, compared to previous estimate of 0.1% drop and after a decline of 0.1% m/m in the prior month. The core producer inflation which excludes food and energy, declined 0.1% compared to a flat reading in initial estimates.

Japan: Japan’s economy showed unexpected contraction for a second quarter in 4Q2023 amid weak domestic demand. The slip into recession will cloud the Bank of Japan’s path to end the current negative interest rate policy. GDP fell an annualized pace of 0.4% in 4Q2023, following a revised 3.3% contraction the previous quarter. The report showed both households and businesses cut spending.

Fixed Income

Global bonds: US Treasuries posted gains, rebounding after recent large losses. We think the gains were due to investors picking up attractive yield level, but there was also a boost from a less than hawkish comment from Chicago Fed President Goolsbee, despite not being a member of the rates committee this year. Essentially, Goolsbee said that the Fed does not have to wait until inflation returns to 2.0% before reducing the Fed Funds Rate (FFR).

MYR Government Bonds: The local government yields rose 2-4 bps on the bellies to the long part of the curve, following the weak UST market post US CPI release. Meanwhile, the market received auction for the 20Y GII and it was well supported with BTC of over 3x, which could indicate that the real money players remained interested on the longer end of the sovereign curve.

MYR Corporate Bonds: Corporate bond trading was mixed to weaker yesterday, negatively affected by recent rise in global yields but also due to a lack of interest as traders slowly return to their desks post CNY holiday. We saw pickup amongst select papers, mainly slanted on banking papers and higher grade names. Notable trades included 07/37 Air Selangor (AAA) at 4.10% (-8 bps) and 03/32 KLK (AA1) at 4.01% (+3 bps).

Forex

United States: The dollar slipped from the three-month highs and consolidated some gains from the previous surge driven by the hotter-than-expected inflation data. The dollar downturn was after mixed tone from Fedspeak – from Fed Vice Chairman Michael Barr and Chicago Fed Austan Goolsbee. The former said that the central bank needs to see more evidence that inflation is on a lasting path down to 2.0%, while the latter remarked a warning that keeping the rates at “quite restrictive” levels for too long could hurt employment. The DXY index dipped 0.2% to close the day at 104.72.

Europe: Across the Atlantic, the EUR rebounded against lower USD, gaining 0.2% to 1.073. The common currency found some boosts from unexpectedly better reading in Eurozone’s industrial production, alongside hawkish remarks by ECB Vice President Guindos. In the UK, despite the weaker dollar, the GBP was pressured by the slower growth in inflation, which missed market expectations, and may put less pressure on the BoE to keep interest rates higher for longer. The British pound was down 0.2% to 1.257.

Asia-Pacific: The greenback was weaker against the Japanese yen as the currency rose 0.1% to settle at 150.58 per dollar. As a reaction towards the sharp JPY decline in the prior day, Finance Minister Shinichi Suzuki said that “rapid movement” in currency is unfavourable for the economy and the government will be closely watching the FX market. Japan’s top currency officials Masato Kanda also warned that authorities will take appropriate action on FX if needed. In the meantime, the AUD rose 0.6% to 0.649.

Malaysia: The ringgit weakened by 0.5%, the largest quantum in two weeks (when the US released a robust non-farm payroll data) to finish the day at 4.787, the weakest level since last October. The ringgit traded within the range of 4.788 and 4.766.

Other Markets

Gold: Lower USD and UST yields capped gold price losses as it closed at USD1,992/oz, not too far from the recent three-months low.

Crude oil: Crude oil prices fell following data showed US crude inventories surged by 12 million to 439.5 million barrels last week, beating market forecast of 2.6 million rises. Brent shed 1.4% while WTI dipped 1.6%.

Source: AmInvest Research - 15 Feb 2024