Snapshot Summary…

Global FX: Dollar rose slightly following mixed data and ahead of key inflation release

Global Rates: US Treasuries posted a modest rally as markets were apprehensive ahead of the January PCE data release today

MYR Bonds: The local bond market remained quiet ahead of the 15Y Gll auction as well as US economic data

USD/MYR: Ringgit weakened amidst a slight risk-averse environment

Macro News

New Zealand: The Reserve Bank of New Zealand held its cash rate steady at 5.5% on Wednesday and cut its forecast peak for rates, surprising the market as policymakers said the risks to the inflation outlook have become more balanced. The rate decision aligned with forecasts, though there were outlying expectations for a rate hike. The latest RBNZ narrative means it is more in line with global peers, most of which have called for an end to aggressive hike cycles. The central bank lowered its forecast cash rate peak to 5.6% from a previous projection of 5.7%, toning down its hawkish stance.

United States: In its second estimate, the US Bureau of Economic Analysis estimated that the economy grew 3.2% q/q in the final quarter of 2023, slightly below the 3.3% q/q advance estimate, after a 4.9% growth in 3Q2023. The downward revision can be attributed to the lower revision in private inventory investment but partly offset by the upward revision to state and local government spending, consumer spending, residential fixed investment, non-residential fixed investment, and exports. The quarterly PCE Price Index was also changed upward at 1.8% vs. the advance estimate of 1.7%.

Fixed Income

Global bonds: US Treasuries posted a modest rally as players bought bonds while markets were apprehensive ahead of the January PCE data release today. However, bonds were aided by the slight downward revision to the 4Q2023 US GDP. Bond markets in Europe were also supported. ECB’s De Guindos signalled that there are positives to be taken from the region’s inflation outlook and that rates will be cut once the ECB sees that the CPI is moving toward the 2.0% target.

MYR Government Bonds: The local bond market remained quiet yesterday ahead of the 15Y Gll auction, and US economic data will be released after hours. Meanwhile, 10 UST holding above the 4.25% level, and firm momentum in the USD index further contributed to yesterday's sluggish MGS interest.

MYR Corporate Bonds: Amid the lack of interest in the MGS space, interest moved onto the PDS market, where we noted gainers outpaced losers. More than that, interest was especially seen in various AA names rather than AAA papers. These include 05/30 GENM (AA1) which was repriced at 4.85% or down 14 bps, and 12/27 Guan Chong (AA-) at 4.28%, down 1 bp. Meanwhile, 04/25 CIMB (AA1) fell 19 bps to 3.76%.

Forex

United States: The dollar index was supported after mixed readings in the 2nd estimate of US GDP quarterly data (lower growth revision but higher price pressure) and a slightly risk-averse environment ahead of key inflation data due tonight. The market forecasts that January’s PCE Price Index will grow 0.3% m/m after 0.2% m/m in the prior month. Aside, three Fed officials (Boston Fed Susan Collins, New York Fed John Williams and Atlanta’s Fed Raphael Bostic) said the path for interest rate cuts will depend on incoming economic data, which may suggest a different path compared to previous rate-cutting cycles. The first two officials preferred a rate cut to happen “later this year”, while Raphael Bostic said he pencilled in a cut in the summer.

Europe: A higher dollar means a lower EUR at 1.084. A lower reading was seen on the economic sentiment indicator in the Euro Area at 95.4 in February 2024, lower than January’s 96.1, due to businesses still struggling with still-high inflation, weak external demand, and elevated borrowing costs. However, ECB official Joachim Nagels continue to reiterate warnings against early rate cuts as it would be “fatal” for the central bank as inflation could rebound. Aside from this, the GBP fell 0.2% to 1.266.

Asia-Pacific: The yuan was relatively unchanged at 7.198, though the PBoC set the yuan fixing prior to the market opening at 7.1075, weaker than the previous fix of 7.1057. Bloomberg news showed that state-owned banks kept onshore spot prices relatively stable by selling dollars. Meanwhile, the JPY weakened 0.1% to 150.69. Japan’s vice finance minister Masato Kanda said he told the G-20 finance ministers meeting that excessive currency moves are undesirable. He also said he will continue watching the market with high urgency.

Malaysia: The USD/MYR climbed 0.2% to finish the day at 4.771 after trading between 4.758 and 4.771. This is amidst a slight risk-off environment as regional stock markets mostly went down ahead of key US PCE Price Index data due tonight.

Other Markets

Gold: Gold price rose slightly by 0.2% to USD2,035/oz as yields went down and investors waited for key US inflation data.

Crude oil: Oil prices were mixed, with Brent price unchanged at USD84 per barrel while WTI fell 0.4% to USD78 per barrel as market players saw data showing rising US crude inventories against expectations that OPEC+ will extend supply cuts.

Source: AmInvest Research - 29 Feb 2024