Snapshot Summary…

Global FX: The dollar remains supported as markets continue to anticipate Fed not to cut rates too soon

Global Rates: Treasuries closes mixed where gains seen on the medium to longer parts of the yield curve

MYR Bonds: Sentiments in the market continue to be negatively affected by rise in short tenor global yields

USD/MYR: Sentiments remain weak as markets continue to watch dollar strength

Macro News

Germany: According to the Federal Statistical Office, Germany’s 4Q2023 contracted at -0.1%. Due to another contraction seen in fourth quarter of 2023, Germany could be in technical recession after the contraction in the prior quarter. Pressure on Germany’s growth was from higher prices amid high interest rates and borrowing costs, and weak foreign demand for the construction and manufacturing sectors.

Malaysia: In January 2024, Malaysia’s inflation rate was at 1.5% y/y, the same as the previous three month pace. On monthly basis, the headline inflation grew 0.2% m/m, the same as previous month’s reading. Excluding volatile prices of items for fresh foods as well as administered prices of goods by the government, core inflation grew slower at 1.8% y/y, vs. prior month’s 1.9% y/y and remained above headline CPI level.

Malaysia: Minister Tengku Datuk Seri Zafrul Abdul Aziz said the Investment, Trade and Industry Ministry (MITI) and its agency the Malaysian Investment Development Authority (MIDA) found that more than 85% of the manufacturing projects approved in the 2021-2023 period have been implemented to date. Tengku Datuk Seri Zafrul Abdul Aziz said a total 2,386 manufacturing projects were approved during that period, and generally these projects would require 18 to 24 months to be completed, depending on their complexity.

Fixed Income

Global bonds: US Treasuries posted gains on Friday. Thus, for the week, Treasuries closed mixed where gains were seen on the medium to longer parts of the yield curve. Alongside the yield decline in US bonds on Friday, we also noted yields slipping in the Bunds, Gilts and JGB markets. We think there was support after the UK said it will start lowering the energy price cap, beginning 1st April. Meanwhile, ECB official Holzmann said that the better choice could be to cut rates late but at a faster pace than to begin too early.

MYR Government Bonds: Malaysia’s government bonds weakened last Friday, and completed its losses for the week. Sentiment in the market continued to be negatively affected by rise in short tenor global yields in view of anticipated delay in the next global central bank rate cutting cycle. The 10Y MGS rose 1 bps Friday and was up 5 bps for the week.

MYR Corporate Bonds: Alongside the weak performing government bond market, corporate bonds in Malaysia were mixed-to-weaker last Friday. However, we still saw pickup in selected infra and banking papers including those names in the AA rated segment. In the GG space, we noted yield realignment along longer tenor Danainfra, such as 11/47 and 02/49 which rose 2-3 bps though 02/44 and 05/46 fell by a larger margin of 8-10 bps.

Forex

United States: The dollar fell slightly but remained supported as markets continue to anticipate Fed not to cut rates too soon. On the other hand, there were some negatives for the dollar, including the continued rally in equities. In addition, we heard New York Fed President Williams saying he expects consumer spending growth to slow this year.

Europe: EUR was also in range alongside the USD support. While ECB official Holzmann said that the better choice could be to cut rates late but at a faster pace, ECB President said the relatively benign 4Q2023 wage growth number is an encouraging development in defeating inflation. Meanwhile, pressuring the EUR was Germany's 4Q2023 GDP contracting by 0.3% q/q, as expected (previous -0.1%), and falling 0.2% y/y, also as expected (previous -0.4%).

Asia-Pacific: CNY saw a mild retreat, on the back of USD support, negatively affected by news that China's January House Prices falling 0.7% y/y (last -0.4%) and January FDI was down 11.7%. Meanwhile, the JPY fell amid the supported USD and sustained anticipation that rates differential will remain in place for longer especially after the past month release of weak Japan economic data including 4Q2023 GDP. However, despite the firm USD, the AUD was buoyed; likely after some recent modest support for the CNY, and also could be because of the positive carry on the AUD (and NZD) versus low yielding FX such as the JPY.

Malaysia: The ringgit was in range as well, but sentiment remained weak as markets continued to watch dollar strength. However, there were some gains for the MYR on the crosses - suggesting possibly more pick up in the ringgit in the short-term period if dollar strength slows. The intraday range was within 4.773 and 4.786.

Other Markets

Gold: Gold held near USD2,035/oz as the timing of Fed's rate cut outlook remained cloudy. Gold found support and headed for weekly gains as the dollar posted its first weekly losses this year.

Crude oil: Oil fell amid caution on the global rates outlook. Also pressuring the price was concerns over potential weakening of demand, after the release of weak GDP numbers recently amongst developed economies.

Source: AmInvest Research - 26 Feb 2024