Snapshot Summary…

Global FX: Dollar fell to below 103 as markets heeded rate cut expectations

Global Rates: US Treasuries were mixed with front-end and belly part of the curve outperforming super-long tenors

MYR Bonds: The local bond market was little changed post MPC decision to leave OPR unchanged

USD/MYR: Ringgit firmed and was seen below 4.700 temporarily yesterday

Macro News

Japan: In January, wage growth in Japan increased at its fastest pace since the previous June, highlighting a potential move by the Bank of Japan (BoJ) to conclude its negative interest rate policy soon. Worker's nominal cash earnings grew by 2% y/y in January, up from a revised growth of 0.8% in December, according to the Ministry of Labour. This development coincides with the peak of annual wage negotiations between companies and unions. The BoJ is keenly observing wage trends as an indicator for the economic cycle, where increased wages lead to demand-driven price increases, a critical factor for ending the negative interest rate policy.

Euro Area: The European Central Bank (ECB) during its second monetary policy meeting of the year, maintained its key interest rates as policymakers weighed on elevated underlying inflation pressure and looming recession. The main refinancing operations rate remained at a 22-year high of 4.50%, with the deposit facility rate unchanged at its historical high of 4.00%. Concurrently, The ECB has adjusted its inflation projections for 2024 to an average of 2.3%, a decrease from the previously forecasted 2.7%. The updated outlook suggests that inflation will meet the ECB's target of 2% by 2025 and is expected to decrease slightly to 1.9% in 2026.

Fixed Income

Global bonds: US Treasuries were mixed with front-end and belly part of the curve outperforming super-long tenors as players reacted to US Fed Chair Jerome Powell testimony saying the Fed is “not far” from having confidence needed to cut the interest rate. In addition, traders also wait for NFP data due later tonight. The 2Y UST yield fell 5 bps, 10Y yield declined 2 bps while the 30Y yield rose slightly by 0.3 bps. The larger gains in UST also followed the gains in Bunds after the ECB policy decision keeping its interest rates level unchanged.

MYR Government Bonds: The local bond market was little changed post MPC decision to leave OPR unchanged at 3.00%. Overall, we think that the market has priced in the OPR decision while waiting for the highly anticipated US NFP data later tonight to gauge further clues on US upcoming interest rates trajectory. Meanwhile, the 10Y UST was hovering around the 4.10% level as the weakness stemmed from market repricing for a US rate cut as soon as June after some economic releases lately has been suggesting that US.is on its way to the 2% inflation target. We anticipate support for MGS today amid USD/MYR testing below 4.680 this morning.

MYR Corporate Bonds: Volume in the PDS market was significantly lower at MYR443 million as cautious trading ensued ahead of US NFP data and after BNM MPC meeting though we continue to see gainers outpacing losers. Among notable trades were MYR100 million on 07/34 DanaInfra Nasional done at 3.89%, MYR40 million on 12/25 Pengurusan Air Selangor (AAA) done at 3.71%, and MYR10 million on 10/27 Quantum Solar Park (AA-) done at 4.09%.

Forex

United States: The dollar continued to weaken as markets heeded the expectations that the Fed will cut rates later this year. Powell's second day of testimony to Congress indicated further that the Fed may be ready to cut later in the year. Fed Governor Bowman said that it is too soon to begin cutting interest rates. However, Cleveland Fed President Mester (FOMC voter) signalled that the FOMC will likely be in position to lower rates this year.

Europe: The EUR was aided by the weak USD. Still, further support was received when ECB President Lagarde said she and her colleagues are not "sufficiently confident" currently to start monetary easing. The ECB kept its deposit facility rate unchanged at 4.00% and signalled that maintaining rates for "sufficiently long" will make a "substantial contribution" to achieving the 2% inflation goal. The ECB cut Eurozone's 2024 GDP forecast to 0.6% from prior forecast made in December of 0.8%; it also cut the 2024 inflation forecast to 2.3% from 2.7%.

Asia-Pacific: The yuan closed mildly firmer versus the weak US dollar, also aided by better trade numbers including exports rising 7.1% y/y over consensus expectation of near 2.0%. Yet, the currency was pressured on PBoC hints of further easing. PBoC Governor Pan Gongsheng said monetary policy tools remain sufficient and ample. In contrast, anticipation that BoJ is nearer to hike rates supported the JPY. BoJ board member Junko Nakagawa said prices show a sustainable path towards the central bank's 2% inflation target.

Malaysia: The ringgit firmed and was seen below 4.700 temporarily yesterday, though it has opened this morning by testing below the 4.680 level. Increased anticipation of a Fed rate cut later this year continued to buoy Asian currencies including the MYR, but the Malaysian currency was aided post MPC meeting where there's no signal that BNM will cut rates in the foreseeable future. Sentiment was also likely aided by the MPC statement that authorities are in coordinated effort to encourage the repatriation and conversion of foreign investment income by Government-Linked Companies (GLCs) and Government-Linked Investment Companies (GLICs).

Other Markets

Gold: Precious metals gold and silver continued to strengthen. Continued fall in global bond yields maintained the support for metals. Demand for metals is rising, used as a store of value, amid expectations of incoming interest rate cut(s) later this year.

Crude oil: Prices moved mixed amid concerns over demand, coming alongside recent weak economic data in both DM and EM economies.

Source: AmInvest Research - 8 Mar 2024