Snapshot Summary…

Global FX: The dollar slipped as market reassess Fed’s rate setting direction

Global Rates: UST yield curve steepened in view of large gains in Gilts and Bunds

MYR Bonds: Cautious trading ensued ahead of new 3Y MGS auction and weak ringgit

USD/MYR: Local currency remained pressured by weak confidence, even as the USD slipped

Macro News

Malaysia: During the first month of 2024, Malaysia’s total trade expanded strongly by 13.3% y/y to MYR234.7 billion. Imports grew 18.8% y/y to MYR112.3 billion while exports grew slower at 8.7% to MYR122.4 billion. This translates into narrower trade surplus at MYR10.1 billion, down from MYR11.7 billion in December 2023. Singapore (MYR17.4 billion) and China (MYR13.9 billion) remained the main destination of exports with a total share of 25.6% to total Malaysia’s exports.

China: The People Bank of China (PBoC) decided to cut its five-year loan prime rate (LPR), which is a key mortgage reference rate, by 25 bps, a record amount, to 3.95% as an effort to alleviate the country’s prolonged property crisis. It was the first reduction since June 2023. At the same time, the central bank kept its one-year LPR unchanged at 3.45%.

Fixed Income

Global bonds: Treasuries strengthened on the front end of the curve, following the larger gains seen in Bund and Gilt markets. This caused the UST yield curve to steepen as the longer tenor yields rose with 30Y yield added 1.3 bps to 4.45%. The front-end gains were supported by the rallies in Gilts after BoE Governor Andrew Bailey said inflation does not need to converge to target before policymakers can start lowering interest rates. As a result, traders are pricing more rate cuts as the 10Y Gilt fell 7 bps to 4.04%. Investors will be on the lookout for the latest FOMC meeting minutes to gauge clearer picture on interest rate outlook.

MYR Government Bonds: The local bond market was down as yields rose 1-2 bps across the curve. This is ahead of the 3Y MGS 05/27 auction with MYR5.0 billion auction size with no private placement. Cautious trading ensued as the ringgit tested the 4.80-level amidst weak confidence in the local currency.

MYR Corporate Bonds: Trading flows were heavy yesterday in the PDS market as interests were seen on GG and AAA-rated papers. More mixed trades were seen in the lower grade AA1 to A+ papers. Among notable trades were MYR30 million on 12/27 Prasarana done at 3.55%, MYR50 million on 06/35 Sarawak Energy Bhd done at 4.11%, and MYR20 million on 12/25 Sime Darby Property done at 3.73%.

Forex

United States: The dollar slipped alongside the lower UST yields overnight. Markets continuing to reassess the Fed’s rate setting direction with some speculation that last week’s release of strong inflation data may have been due to seasonal influences, contributed to dollar weakness. Also, PBoC action to lower rates more than expected, to boost its economy, also lent a hand to pressure the safe haven USD.

Europe: USD weakness supported the EUR and GBP which rose modestly to close at 1.081 and 1.262 respectively last night. There was little in terms of fresh data to drive the EUR, but European Central Bank noted that wage growth slowed to 4.5% in 4Q2023 from 4.7% in the previous quarter. The ECB had previously noted that wage growth provides a risk to inflation, and we think contributed to some hesitant ECB remarks against an earlier than expected rate cuts.

Asia-Pacific: In China, the PBoC cut its five-year loan prime rate by 25 basis points. According to Reuters, this was more than analysts had expected. The quantum of the cut was also the largest since the reference rate was introduced in 2019. Meanwhile, the AUD rose as the PBoC action somewhat lifted the expectations for China’s economy. The JPY rose versus the weaker USD while the recent weak JPY added some hopes that BoJ could lift rates sooner than expected.

Malaysia: The local currency remained pressured by weak confidence, even as the USD slipped. The action by PBoC to cut rates also played on MYR sentiment even though the CNY was firm yesterday. The BNM governor yesterday remarked that the weakness in the MYR is in no way reflecting the positive prospects of Malaysia’s economy. The MYR tested the 4.80 level and was at its weakest since 2008.

Other Markets

Gold: Prices remained steady, seen up 0.4% yesterday. Continued consolidation in the USD prompted more support to gold. The market may have also reacted to a report from the World Gold Council that it sees global central banks looking to pile up their gold holdings.

Crude oil: Prices slid overnight amid demand concerns. Brent and WTI were both spotted down in excess of 1.0%. The former settled at USD82.34 (down >USD1) and the latter at 78.18 (down about USD1 per barrel).

Source: AmInvest Research - 21 Feb 2024