Snapshot Summary…

Global FX: Dollar fell ahead of US retail sales data

Global Rates: Global bonds retreated and the 10Y US Treasuries again closed near the 4.20% level

MYR Bonds: The local bond market weakened by 1-2 bps following US CPI data release

USD/MYR: The ringgit weakened in tandem with the weak performances of Asia FX

Macro News

Eurozone: In January 2024, industrial production in the Euro Area saw a significant m/m decrease of 3.2%, reversing sharply from the revised 1.6% m/m growth in December and surpassing market expectations of a 1.5% m/m decline. This slump was the most severe contraction since March 2023 and the second largest since April 2020, post-COVID-19 outbreak. The decline was largely driven by a substantial 14.5% drop in capital goods production. Additionally, there were reductions in durable goods (-1.2%) and non-durable consumer goods (-0.3%). On a y/y basis, industrial production fell by 6.7% y/y in January 2024, after the revised 0.2% y/y growth in December and notably worse than the anticipated 2.9% y/y decline.

United Kingdom: In the first month of 2024, the British economy exhibited a modest m/m growth of 0.2%, following a 0.1% contraction in December, aligning with market expectations. This recovery comes after a technical recession in the latter half of 2023. The primary contributor to this growth was the services sector, which expanded by 0.2%, with significant increases in retail trade (excluding motor vehicles and motorcycles) at 3.4%, health services in the market sector at 0.9%, and education at 0.7%. Additionally, the construction sector saw a 1.1% increase. In contrast, industrial output declined by 0.2%, which was led by a 2.2% decrease in water supply, sewerage, and waste management.

Fixed Income

Global bonds: Bonds retreated, and we noted the 10Y US Treasuries again closing near the 4.20% level. Treasuries continued to be negatively affected by this week’s core CPI release and signals that BoJ is nearer to hiking interest rates. ECB policymaker Wunsch said the central bank may lower borrowing costs without ensuring inflation returns to target. Bank of France lowered its growth forecast for 2024 to 0.8% from 0.9%. Bunds rose 4 bps on the 10Y tenor.

MYR Government Bonds: The local bond market weakened by 1-2 bps following US CPI data yesterday and remained sticky. However, we heard players have been supporting the belly of the curve (i.e. 5Y to 10Y) lately, and we think the local market has slowly regained foreign interest with USDMYR below 4.8. Meanwhile, we expect the re-opening of MGS 11/33 to be well received as players have supported it lately.

MYR Corporate Bonds: The Malaysian corporate bond market saw gainers outpaced losers in active flows yesterday. Gainers continued to comprise higher grade names, including banking papers. We noted heavier flows on 01/25 PLUS (AAA) at 3.64% (- 22 bps), while 08/27 Sarawak Hidro (AAA) rose by 1 bp to 3.76%, and short-dated 10/24 Toyota Cap (AAA) was unchanged at 3.73%.

Forex

United States: The Dollar consolidated its gains, falling 0.2% to close near its intraday low at 102.79, ahead of key February’s retail sales data, which is a gauge of private consumption, where the market is looking at 0.8% m/m growth after an unexpected 0.8% m/m shrank prior month.

Europe: The Euro rose 0.2% to 1.095, reversing its losses in the previous session. This is despite the larger-than-expected drop in the Eurozone’s industrial production, which may suggest a recessionary environment in the region. In the UK, the GBP was stable at 1.280, following the UK’s GDP showing growth during January after falling into a technical recession in the last quarter of 2024.

Asia-Pacific: The Japanese yen fell by 0.1%, as news flows by Nikkei report that BoJ policymakers will discuss ending the negative interest rate policy during the upcoming Monday policy meeting. In the meantime, the yuan weakened 0.1%, marking a bearish trend for the second day due to dollar buying in the onshore market despite state- owned banks' provision of dollar liquidity, according to news reported by Bloomberg.

Malaysia: The USD/MYR pair snapped its bearish trend and rebounded 0.2% to finish the session at 4.686, in tandem with the weak performances of Asia FX, where Thai Baht and Korean Won dropped by 0.5% and 0.3%, respectively, against US Dollar. We continue to see the possibility of weaker ringgit today as the market may turn cautious again ahead of tonight's US retail sales and PPI data.

Other Markets

Gold: Gold price rose 0.7% to USD2,174/oz after it snapped its multiple days of bullish run. It benefitted from traders’ slightly risk-averse sentiment in anticipation of further clues about the US Fed's monetary policy outlook.

Crude oil: Oil prices rose sharply, with benchmark Brent gaining 2.6% and WTI soaring 2.8%, following data showing that US stockpiles declined for the first time in seven weeks. News reported that a Ukrainian drone attacked one of Russia’s biggest refineries.

Source: AmInvest Research - 14 Mar 2024