AmInvest Research Reports

Fixed Income & FX Research - 23 Feb 2024

AmInvest
Publish date: Fri, 23 Feb 2024, 10:42 AM
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Snapshot Summary…

Global FX: The dollar fell slightly amidst risk-on mode

Global Rates: The UST yield curve flattened following lower initial jobless claims data

MYR Bonds: Ringgit government bonds were mixed with a sell-off seen in the morning

USD/MYR: The Ringgit continued to firm and closed below the 4.80 level

Macro News

United States: The S&P Global Flash US Composite PMI report showed slower activities in private sectors as the headline reading fell to 51.4 in February from 52 in the prior month. The lower reading can be attributed to lower growth in services sector though manufacturing sector saw improvements. Cost burdens remain subdued for businesses but slower growth in new sales put a limit on new recruitments and placed a slight decrease in confidence.

United Kingdom: In the UK, the S&P Global Flash UK Composite PMI headline reading rose to 53.3 in the second month of 2024, the highest level since May 2023 and surpassing the forecasted 52.9. The higher growth was supported mainly by robust services sector as its PMI at 54.3 while manufacturing production continue to be below growth threshold at 47.1 for the twelfth consecutive months.

Fixed Income

Global bonds: The US Treasuries saw mixed performance, with the front end of the curve traded weaker as traders continue to re-price the rate cut expectations this year following stronger initial jobless claims data and record-breaking rally in US stock markets, which indicates elevated risk appetites in the market. The number of people claiming unemployment benefits further dropped to 201K last week, beating market expectations of 218K. This marked the third straight week of falling data and may signal a still strong labour market. By the end of the session, the Treasuries yield curve ended the day flatter, with 2Y yield rising 5 bps while 15Y and 30Y yields dropped 3 bps and 2 bps each. On another note, a chorus of Fed officials reiterated that policymakers would take some time before trimming any interest rates as some of them would like to see more data first before deciding anything.

MYR Government Bonds: The Ringgit bond was mixed yesterday with a sell-off that took place in the morning session following the FOMC minutes yesterday cautioning on rate cut while Fed Michelle Bowman pushed back against an imminent rate cut. However, the local bond market recovered partially from the earlier losses as the Ringgit strengthened below 4.7800 and found some support.

MYR Corporate Bonds: Flows in the PDS space were decent at MYR548 million. Among notable trades were MYR10 million 10/42 Danainfra Nasional done at 4.11%, MYR10 million on 10/27 Amanat Lebuhraya done at 3.85%, and MYR20 million on 10/30 Bank Pembangunan Malaysia done at 4.00%.

Forex

United States: Yesterday’s markets were focused on global manufacturing and services PMI numbers. These were mixed to firmer and provided little change to current thinking that central banks, though signalling that there will be rate cuts this year, are reluctant to reduce rates too soon in fear of reigniting inflation. These included signalling from Fed Vice Chairman Philip Jefferson and Philadelphia Fed’s Harker. Global FX levels were mixed in a mostly narrow range.

Europe: Eurozone's CPI for January rose 2.8% y/y, as expected, but down from 2.9% the month before. Flash February Manufacturing PMI fell to 46.1 from 46.6 (consensus 47.0), and flash Services PMI rose to 48.9 from 48.4 (consensus 48.8). The EUR was supported, but little changed, just above the 1.082 level.

Asia-Pacific: China's yuan weakened slightly while the dollar was broadly steady during the Asian session, after minutes of the latest policy meeting reinforced the message that the Fed is in no hurry to deliver rate cuts. Prior to the market opening, the PBoC set the midpoint rate CNY, at 7.1018, firmer than the previous fix of 7.103. JPY was pressured. Japan's flash February Manufacturing PMI fell to 47.2 from 48.0 (consensus 48.2) and the flash Services PMI fell to 52.5 from 53.1.

Malaysia: The ringgit saw support after it fell to multi-year lows earlier this week. USD/MYR was traded late yesterday at a steady level of 4.795 before dropping towards the 4.770 level. Also providing support for the currency was the similar bullish tone by S&P Global Ratings, which forecasted a 9.0% rebound in MYR by the end of the year and said that weak currency does not pose a risk to the sovereign rating.

Other Markets

Gold: Prices fell slightly overnight as bond yields rose after the FOMC meeting minutes were released.

Crude oil: Prices fell after the American Petroleum Institute reported that US oil inventories rose by 7.2 million barrels last week, above the consensus of 4.3 million barrels. However, the Energy Information Administration showed a rise of only 3.5 million barrels.

Source: AmInvest Research - 23 Feb 2024

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