Snapshot Summary…

Global FX: The dollar slips further from its three-month highs on the back of disappointing US retail sales data

Global Rates: Treasuries add more gains while rebounding further from the post-CPI slide

MYR Bonds: The local sovereign bond market rebounds by 1-2 bps as the 10Y UST retraced below 4.25%

USD/MYR: The pair consolidates recent large gains, falling by 0.1%

Macro News

US: In a surprising data release, retail sales in the US disappointed as it declined 0.8% m/m in January (consensus -0.2%) and also followed a downward revised +0.4% (from +0.6%) in December. Excluding autos, retail sales declined 0.6% m/m (consensus 0.1%) following (unrevised) +0.4% in December.

UK: Advance figures suggest the UK may have fallen into a technical recession. UK's flash 4Q2023 GDP contracted 0.3% q/q (consensus -0.1%; last -0.1%) and fell 0.2% y/y (consensus 0.1%; last 0.2%). Business Investment was up 1.5% q/q (consensus - 0.1%; last -2.8%) and rising 3.7% y/y (last 2.6%). The December Industrial Production rose 0.6% m/m (consensus -0.1%; last 0.5%) and up 0.6% y/y (consensus -0.4%; last 0.1%).

Singapore: Singapore reported that its 4Q2023 GDP expanded by 1.2% q/q, which was below expectations (consensus 1.7%; last 1.0%), and growing by 2.2% y/y, also below expectations (consensus 2.8%; last 1.0%).

Fixed Income

Global bonds: US Treasuries closed modestly firmer and added more of the prior day’s gains while rebounding from the post-CPI slide at the same time. Aiding the safe- haven UST market was 4Q2023 advance data suggesting the UK and Japan may have entered a technical recession. Further aiding Treasuries was the January US advance retail sales data coming below estimates at -0.8% m/m (consensus -0.2%), whilst US industrial production fell 0.1% m/m (consensus 0.2%). Aside, the US Treasury Department reported that foreign holdings in US Treasuries rose to another record high in December, up a second straight month. Holdings rose to USD8.1 trillion from USD7.81 trillion in November. Compared with a year earlier, Treasuries held by foreigners expanded by 10.5%.

MYR Government Bonds: Yesterday, the local sovereign bond market rebounded by 1-2 bps across the curve following the 10Y UST retracing below 4.25% ahead of the US retail sales data and initial jobless claims after hours. The longer end of the curve continued to be supported as yields above 4.00% are still considered relatively attractive to investors. Similarly, IRS rates fell 1-2 bps yesterday.

MYR Corporate Bonds: There was mixed to firmer movement along the corporate bond market yesterday and where the gains were especially noted on banking papers. Amongst these, short-dated 05/24 CIMB (AAA) fell 12 bps to 3.49%, as well as 05/26 RHB (AA1) which fell 8 bps to 3.73%

Forex

United States: The dollar slipped further from the three-month highs seen earlier this week. Retail sales data at lower than expectations pared down caution that the Fed will wait longer before cutting rates; thus, pressuring the USD. However, overnight, we heard Atlanta Fed President Raphael Bostic (FOMC voter) that while the US central bank has progress in lowering inflationary pressures, ongoing risks mean that he was not ready to call for interest rate cuts. What kept the USD also supported was the lower reading of the number of people claiming unemployment benefits, signalling a still robust labour market.

Europe: The EUR on the other hand, rose 0.4% to settle the day at 1.077 amidst the weaker dollar. ECB President Christine Lagarde said that the ECB will continue to follow a data-dependent approach as the ongoing disinflation process is expected to bring down inflation further down over 2024. In the UK, the GBP gained by 0.3%. The currency gains were limited as the UK’s GDP fell short of the market forecast and fell into recession in 2H2023.

Asia-Pacific: The JPY firmed on Thursday, past the 150-level, specifically at 149.93. Investors are now cautious with any news flow related to the currency after it topped the 150-level recently for a possible currency intervention. On the data front, unexpectedly the Japanese economy fell into recession after it shrank for two quarters in a row. In Australia, the AUD jumped 0.5% despite the unemployment rate spiking to 4.1% in January, higher than market expectations of 4.0% and the previous month's 3.9%.

Malaysia: The USD/MYR pair consolidated the recent large gains by falling 0.1% to finish at 4.783. The pair traded within a much subdued range of 4.775 and 4.785. Domestically, the focus today will be on Malaysia’s 4Q2023 final estimation GDP data. Our model, which is based on the expenditure approach, suggests that the economy would grow by 3.4% y/y (the same as the advance estimate) due to solid and continuous expansion driven by higher labour productivity and healthier distributive trade sales.

Other Markets

Gold: Gold prices gained 0.6% to above the USD2,000/oz level as the UST yields and the dollar were down overnight.

Crude oil: Crude oil prices soared after the dollar sell-off but gains were capped by International Energy Agency (IEA) ‘s report saying slowing demand growth this year. Brent rose 1.5% while WTI surged 1.8%

Source: AmInvest Research - 16 Feb 2024