Snapshot Summary…

Global FX: Dollar falls further amidst mounting expectations of an imminent Fed rate cut

Global Rates: US Treasuries close modestly firmer post NFP data

MYR Bonds: The MYR government bonds post gains in a cautious trading session

USD/MYR: The ringgit firms further for the third straight session

Macro News

United States: In February 2024, the US economy experienced higher job growth, with non-farm payrolls up by 275K, higher than January’s revised +229K and surpassing market forecast of +200K. Notable job creation was observed in the health care sector, with substantial contributions from both health care services and hospitals. Government employment, particularly within local government excluding education, also saw a marked increase. However, we note that the December 2023’s figure was also revised lower to +290K from +333K. At the same time, in February 2024, there was a marginal increase in the average hourly earnings for employees across US private nonfarm sectors, with a rise of 0.1% m/m. This increment followed a revised increase of 0.5% in January, falling short of the expected 0.3% predicted by consensus.

Malaysia: In January 2024, the labour market saw a slight improvement with the number of unemployed individuals decreasing by 0.1% to a total of 567.3K unemployed persons. This change marks a subtle decrease from December 2023, which recorded 567.8K unemployed individuals. This translates into a stable unemployment rate at 3.3%, the same rate observed in the previous month. Meanwhile, the labour force participation rate (LFPR) remained consistent at 70.2%, unchanged from the month prior.

Fixed Income

Global bonds: The US bond market closed modestly firmer on Friday but completed their gains for the week, amid raised signals by Fed officials especially from chair Powell that rate cuts are anticipated later this year. On Friday, bond markets saw muted reaction to the firm February NFP number, but players also reacted to the sharp downward revisions to the December and January NFP and rise in the unemployment rate.

MYR Government Bonds: The MYR government bond market posted gains in cautious trading session, coming ahead of the NFP release. Benchmark papers moved 1*2 bps lower across the curve. Sentiment was aided by comments from Fed Chair Jerome Powell who signalled that the Fed is not far from gaining confidence to cut interest rate this year.

MYR Corporate Bonds: Trading in the corporate bond market was mixed last Friday but we noted pickup on the lower rated (AA and A) segments of the market, which reflects the better overall sentiment in the ringgit bond pace alongside the outlook forglobal rate cuts. These trades include 04/29 SP Setia (AA-) at 4.00% (-2 bps) and 04/28 OSK (AA) at 3.89% (-9 bps).

Forex

United States: Despite the slight uptick in the February non-farm payrolls number, the downward revision in December’s and January’s reading suggests a cooling labour market, and nudged slight dollar sell-off on Friday. The DXY index fell 0.1% to 102.71. The market also was influenced by US Fed Chair Jerome Powell’s testimony, which solidified the case for rate cuts later this year.

Europe: The EUR could not benefit from the weaker dollar as one ECB official opened the door for an April rate cut. Bank of France Governor Francois Villeroy de Galhau said it is probable that there will be a first rate cut in the spring as the season goes “from April until June 21”. Aside, the GBP rose 0.4%, marking the sixth day of gains, the longest winning streak since October 2023 as the market is now focusing on Fed’s rate cut narrative.

Asia-Pacific: The Chinese yuan firmed 0.1% amidst weaker dollar and as the PBoC set its yuan reference rate at 7.0987, much stronger than market forecast of 7.1881 according to a Bloomberg survey. In the meantime, the JPY firmed sharply by 0.7% to 147.06 as the expectations for the BoJ to exit its negative interest rate policy are mounting. Based on news flow by Reuters, BoJ policymakers are increasingly open to the idea of ending negative interest rates this month on the anticipation of successful pay hikes in this year’s annual wage negotiations.

Malaysia: The ringgit firmed further for the third straight session amidst continued support on regional currencies due to higher expectations for an imminent rate cut later in 2024. Coupled with recent communications by authorities on encouraging corporates, GLCs and GLICs into ringgit, the currency is now trading at its strongest level since January.

Other Markets

Gold: Gold price rallied again, notching up 0.9% gains to USD2,179/oz as yields and USD fell, alongside persistent buying from certain central banks.

Crude oil: Oil prices fell as players are concerned with lagging Chinese demand amidst China’s economic growth risks. Brent fell 1.1% while WTI sank 1.2%.

Source: AmInvest Research - 11 Mar 2024