Snapshot Summary…

Global FX: DXY index fell in tandem with the fall on UST yields

Global Rates: US Treasury gains following the release weaker economic data

MYR Bonds: The MGS market saw the level remain well supported amidst recent strength in MYR

USD/MYR: Ringgit weakened to follow subdued yuan

Macro News

United States: In February 2024, the ISM Services PMI declined to 52.6 from a four- month peak of 53.4 in January, falling short of the market’s anticipated 53. This downturn indicates a marginally slower expansion within the services sector, characterized by accelerated supplier deliveries and a contraction in employment. Furthermore, there was a more pronounced reduction in inventories and a deceleration in the backlog of orders. This is amidst persisting concerns regarding inflation, employment, and ongoing geopolitical conflicts among service providers.

Japan: In February 2024, Tokyo's Consumer Price Index (CPI) in Japan rose to 2.6% from January's 1.6%. The core CPI saw a 2.5% y/y increase in February 2024, marking a four-month high and aligning with consensus expectations. This represented a significant increase from January's revised 1.8% and surpassed the Bank of Japan's (BoJ) 2% inflation target amidst the expectations that the BoJ will exit negative interest rate policy era soon. However, BOJ Governor Kazuo Ueda emphasized it was premature to predict a sustainable achievement of the 2% inflation target, highlighting the importance of further data analysis on wage trends and the potential for a positive wage-inflation cycle.

Fixed Income

Global bonds: US Treasury yields decreased on Tuesday following the release of the February ISM data, which indicated a slight slowdown in services sector growth, hinting at easing inflationary pressures. This is amidst investors await Federal Reserve Chair Jerome Powell's congressional testimony and February's employment data later in the week. Chair Powell's upcoming testimony to Congress, along with the release of the February nonfarm payroll report on Friday, are expected to shape market expectations in view of the Federal Reserve's policy direction. As per the CME FedWatch tool, market suggests a 97% likelihood that the Fed will maintain interest rates between 5.25% and 5.50% at its March 20 meeting. The probability of at least a 25-basis-point reduction by May has decreased to 20.3% from 62.3% a month earlier, with a 58.9% chance of a cut by June.

MYR Government Bonds: The MGS market saw the level remain well supported. In our opinion, we think those support is seen coming from both local and foreign players. We continue to see strong support on the back end of the MGS curve while credit spreads in the PDS space remaining tight with primary take up remaining strong indicating that local bond yields will remain resilient.

MYR Corporate Bonds: Flows in the PDS were noticeably heavy at MYR1.41 billion with much of the trades were occupied by the higher grade papers (GG, AAA rated). Papers by Danainfra, as a whole, raked in MYR230 million while Cagamas papers raked in as much as MYR400 million within the session. Other notable trades were MYR110 million on 09/29 edotco (AA+) done at 3.94% and MYR200 million on 04/26 UDA Holdings done at 4.50%.

Forex

United States: The dollar fell on Tuesday as bond yields also fell amid release of weaker-than-expected economic data including the January factory orders and February ISM services. Nevertheless, there was late support for the dollar after weak equities markets spurred some dollar liquidity demand.

Europe: The EUR rose as the dollar weakened but gains were limited as demand for the common currency was also modest amid the overnight decline in bond yields. In any case, Eurozone February S&P composite PMI was revised upward to an 8-month high of 49.2 from the previously reported 48.9.

Asia-Pacific: Yuan trading was muted as markets reacted to the National People’s Congress setting the 2024 GDP growth target of "around 5%”, which was in line with expectations. The government also set a CPI target of around 3%. Meanwhile, China's February Caixin Services PMI fell to 52.5 (consensus 52.9) from 52.7 previously. The Australian dollar fell alongside the weaker yuan 0.1%, even as the country reported an improved 4Q2023 current account, ahead of the GDP release today, and rose in the services PMI number.

Malaysia: The ringgit fell versus the US dollar yesterday to follow the subdued yuan on the back of the modest China GDP target, at 5% for this year when the growth is estimated at 5.2% recorded in 2023.

Other Markets

Gold: Gold continues to rally, supported by expectations of interest rate cuts by major central banks this year as inflation eases.

Crude oil: Crude oil fell as traders priced in muted reaction to China’s growth targets. Markets also noted China’s government did not spell out specific details on how to achieve those targets.

Source: AmInvest Research - 6 Mar 2024