Snapshot Summary…

Global FX: Dollar rose following the hotter-than-expected core inflation data

Global Rates: US Treasuries saw a sell-off on speculation of a potential delay in the US Fed rate cut

MYR Bonds: The local bond market was seen in range ahead of the US CPI data release after-hours

USD/MYR: The ringgit firmed further for the fifth straight session despite mostly weaker regional currencies

Macro News

United States: In February 2024, the annual consumer inflation rate unexpectedly increased to 3.2% y/y, up from 3.1% in January and exceeding forecasts of 3.1%. Energy costs decreased less than anticipated, with a 1.9% drop compared to a 4.6% decline in January. Gasoline, utility gas service, and fuel oil prices all saw reduced declines. Conversely, price increases moderated for food, shelter, new vehicles, and medical care. Apparel costs remained stable, while used cars and trucks continued to see a decline. However, transportation prices rose sharply. The core consumer price inflation rate, which excludes volatile items such as food and energy, softened to a near three-year low of 3.8% in February 2024, down from 3.9% in January but above market expectations of 3.7%.

United Kingdom: From November 2023 to January 2024, the unemployment rate in the UK slightly increased to 3.9%, remaining largely stable from the previous quarter but marginally beating the market forecast of 3.8%. At the same time, the average weekly earnings in the UK, including bonuses, grew by 5.6% y/y in the three months to January 2024, marking the slowest increase since July 2022. This growth rate was lower than the 5.8% in the prior period and below the expected 5.7%, which suggests slowing wage growth pressure on inflation.

Fixed Income

Global bonds: The US Treasuries saw a sell-off on Tuesday following the release of data indicating an acceleration in inflation for February, leading to speculation of a potential delay in the Federal Reserve's first rate cut during the latter half of the year. The yield curve ended the day higher by 3 – 6 bps across the tenors. Meanwhile, the Bund curve bear flattened amidst the uptick in US Core CPI while the Gilt curve bull steepened after data showed slower growth in weekly earnings in the UK.

MYR Government Bonds: The local bond market was seen in range ahead of the US CPI data release after hours. Meanwhile, the MGS 11/33 reopening was announced with MYR5.0 billion to be issued on Thursday. The WI level was quoted at 3.84/3.82 as players were seen trying to cheapen the level ahead of the tender.

MYR Corporate Bonds: The corporate bond market saw better bids yesterday, coming after the past few days of gains in the govvies market. Gains were led by banking and infrastructure-related names along both AAA and AA-rated segments.Flows were heavy on 01/33 Public Bank (AA1) at 3.93% (-1 bp) and 08/25 Sabah Dev (AA1) at 4.18% (-1 bp).

Forex

United States: Higher UST yields prompted higher demand for the dollar after faster- than-expected core inflation in the US prompted more bets on the delay of the US Fed rate cut. Market players are also concerned if the upside surprise could influence the Fed to revise upwardly its dot plot projections on where FFR would land by the end of this year.

Europe: The EUR held its ground as it closed the session relatively unchanged at 1.093 against a stronger dollar. Investors mull ECB Governing Council Villeroy de Galhau's statement saying that the policymakers mostly are in broad agreement that interest rates will be lowered starting in Spring as the inflation battle is “being won”. In the meantime, the GBP fell 0.2% to 1.279. The BoE Governor Andrew Bailey said that the UK is now “near or at full employment”. He also signalled that he is now less concerned about the wage-price spiral developing, raising the bets that the central bank could cut interest rates soon.

Asia-Pacific: The Japanese yen weakened 0.5% to finish the day at 147.68. Market players are looking forward to the conclusion of union wage talks later today as a cue for BoJ’s decision on when it will exit its ultra-accommodative policy. The CNY snapped its three-day winning streak as investors were waiting for key US CPI figures. The PBoC continued its support of the currency by fixing the yuan reference rate at 7.0963, the strongest level since 2nd January 2024.

Malaysia: The ringgit firmed further for the fifth straight session, gaining 0.1% to 4.678, benefitting from the “undervalued” sentiment. However, we are taking a cautious stance today as the gains could be reversed following a higher US Core CPI reading last night.

Other Markets

Gold: Gold price fell as the UST yields and dollar rose as underlying US inflation topped forecasts in February, shoring up the Fed’s cautious approach to cutting interest rates.

Crude oil: Oil prices went lower after OPEC said its latest supply cuts had been delayed as Iraq produced above its quota again and market players are concerned about demand following the higher-than-expected US Core CPI data. Brent dropped 0.4% while WTI fell 0.5%.

Source: AmInvest Research - 13 Mar 2024