Snapshot Summary…

Global Rates: Bonds in the DM space closed mixed though US Treasuries strengthened upon weak data releases and cautious reactions to Fed-speak

MYR Bonds: Government bonds in Malaysia were supported, mostly on the bellies to the far end of the curve

Global FX: Weak data contributed to the USD decline

USD/MYR: MYR appreciated aided by notion that MYR is undervalued

Fixed Income

Global Bonds: Bonds in the DM space closed mixed last week except there were rallies in the US Treasuries (UST) market and on short-tenor UK govvies (Gilts). Boost to bonds was weak data, such as the January core PCE index falling to +2.8% in January, the manufacturing ISM down to 47.8 in February from 49.1 previously, 4Q2023 GP at +3.2% q/q in vs 3.3% q/q advance estimate, and durable goods orders at -6.1% m/m in January, the largest drop since April 2020. This week, we have the February non-farm payrolls (consensus nearer to 200k vs >350k in January) and alongside that we have Fed’s Powell testifying before Congress with the FOMC meeting scheduled for later this month. Last week, we heard signals that policymakers are starting to mull the date of the first rate cut (as opposed to before when policymakers were mostly avoiding the issue).

Malaysian Government Bonds: Government bonds in Malaysia were supported, mostly on the bellies to the far end of the curve, aided by the rally in the UST market and, in our opinion, players picking up attractive yields on the long end. The interest on long tenors was especially reflected in the 15Y GII auction (GII 09/39) where the MYR3.0 billion tender (plus MYR2.0 billion PP) garnered BTC ratio of 2.97x. Malaysian Government Bonds View: We express caution for the MGS market in the coming week, ahead of more Fed-speak, ECB meeting, non- farm payrolls release, and still sluggish MYR.

Malaysian Corporate Bonds: The MYR corporate bond segment was mixed. Steady net buying of medium to long tenor MGS supported long tenor and lower rated PDS. However, there was profit taking on higher grade and shorter tenors after recent tightening of spreads.

Malaysian Corporate Bonds View: Value still exists on high grade GGs; such as on select shorter tenors GG Prasarana (Exhibit 2).

Forex

DXY Index: The US dollar fell slightly, its second straight week of depreciation. Weak data contributed to the USD decline as well as Fed policymakers starting to signal the first rate cut. Boston Fed’s Susan Collins, New York’s Williams and Atlanta’s Raphael Bostic said the path for cuts will depend on incoming economic data, with Bostic saying he has pencilled in a cut in the summer. As for data, traders focused on the slower PCE inflation figures, disappointing ISM manufacturing index, slower 4Q2023 reading, as well as the drop in consumer confidence in Conference Board report.

Europe: In Europe, the EUR rose slightly by 0.1% w/w to close at 1.084 amid the weaker USD. Ahead of the ECB policy meeting this week, EUR sentiment was supported as the region’s headline inflation for February 2024 was released at 2.6% y/y, above forecast of 2.5% y/y (last 2.8%%). Core inflation, grew slower at 3.1% y/y (3.3% y/y in January) but also above forecast of 2.9% y/y. That being said, ECB officials – similar to Fed members – are also beginning to signal rate cuts. Policymaker Vasle said the ECB is looking at a rate-cutting phase barring no big surprises. Policymaker De Guindos said the recent inflation outlook has been very positive and that rates will be cut once it is assured that CPI is moving toward the 2.0% target. Meanwhile, policymaker Panetta said inflation is falling faster than expected. Thus, past the coming week, EUR level will be a balance of ECB and Fed ongoing signalling on rates.

Asia: CNY fell late last week, reversing early gains. It gave up its ground last Friday upon mixed PMI numbers. China's official February Manufacturing PMI fell to 49.1, within expectations, from 49.2 in January. However, the private Caixin Manufacturing PMI rose a tad to 50.9 from 50.8 previously. Early week gains, we think owed mostly to technical support, as well as news suggesting state-owned banks kept onshore spot prices relatively stable by selling dollars. Markets now look forward to the National People’s Congress in the coming week, where policymakers will lay out economic targets and policy for the year. JPY fell on dovish remarks by BOJ governor Kazuo Ueda who sees little change to inflation levels. Elsewhere, SGD was modestly weaker in a cautious mode alongside gains in MYR and THB and when regional stock markets were generally supported. AUZ and NZD both fell against the USD, affected by weak CNY, ahead of the People’s Congress, and volatility in the commodities markets.

Malaysia: The MYR remained pressured but showed appreciation as the USD/MYR fell 0.7% w/w to 4.746, aided by notion that MYR is undervalued and also coming alongside the 0.1% w/w decline the USD index. Furthermore, on a technical basis, we found USD/MYR breaking YTD upward channel late last week (Exhibit 4). Better risk appetite in the region, reflected in Asian stock rallies, further aided the MYR. Reports show the BNM’s Financial Markets Committee (FMC) concurring with the assessment (such as that by the Finance Minister II) that the ringgit is deemed undervalued when viewed against Malaysia's economic fundamentals and prospects.

Source: AmInvest Research - 4 Mar 2024