Snapshot Summary…

Global FX: The Dollar rose as the Fed kick-off its two-day policy meeting

Global Rates: US Treasuries gains, paring recent losses

MYR Bonds: The local bond continued to face sell-off pressure yesterday

USD/MYR: The ringgit closed weaker, approaching 4.75-level

Macro News

Japan: In its March meeting, the Bank of Japan (BoJ) increased its key short-term interest rate to a range of 0% to 0.1% from -0.1%, aligning with market expectations and ending its eight-year period of negative interest rates. This adjustment marks the first rate hike since 2007. However, two out of the nine BoJ board members, Toyoaki Nakamura and Asahi Noguchi, opposed the decision. Additionally, the BoJ ended its yield curve control for 10-year government bonds and plans to gradually reduce corporate bond purchases before completely halting them in about a year. Despite these changes, the BoJ emphasised its readiness to respond flexibly, such as by increasing the amount of Japanese Government Bond (JGB) purchases, in the event of a rapid rise in long-term rates.

Australia: The Reserve Bank of Australia held its cash rate steady at 4.35%, matching with market expectations and after cumulative rate hikes totalling 425 basis points over the past two years. The central bank emphasised that its main priority is to bring inflation back to its target range of 2-3% by 2025 and to the midpoint by 2026. It further stated that the path for interest rates is uncertain as the Board is not ruling anything in or out, with future decisions to be based on evolving data and risk assessments.

Fixed Income

Global bonds: U.S. government bond closed on the upside after few days of sharp losses as investors awaited the Fed’s policy announcement. The Federal Reserve commenced its two-day monetary policy meeting, with expectations that interest rates will remain steady at 5.25% to 5.5%. However, there is speculation that the Fed might adjust its median interest rate forecast for 2024 in light of persistent inflation. The 10Y key yield fell 3 bps to 4.29% while the 2Y yield dropped 5 bps to 4.68%. We also saw the Bund yield curve closed mixed but steepened with ultra-long yields rising around 1 bps by the end of the session.

MYR Government Bonds: The local bond market continued to face sell-off pressure yesterday following 10Y UST hovering at the high side of 4.32% on Monday. We suspect local real money players continue to lend support to the yield curve partly due to tight credit spread in the PDS space which prompted them to shift their purchases towards the govvies market.

MYR Corporate Bonds: The trading volume in the PDS market was slightly heavier at MYR834 million. Buying interests persisted and outpaced losers and we noticed that more lower rated papers (AA- to AA1) were being bought by market players. Amongnotable trades were MYR20 million on 04/26 KLK done at 3.69%, and MYR10 million on 06/32 Jimah East Power done at 4.43%.

Forex

United States: The dollar was supported while the yen fell post-event after the BoJ exited its negative rate policy after the yen had been relatively supported ahead of the BoJ meeting. The dollar was also in demand ahead of the Fed policy meeting this week.

Europe: Germany's March ZEW Economic Sentiment index rose to 31.7 from 19.9 (consensus 20.6) and ZEW Current Conditions ticked up to -80.5 from -81.7 (expected -82.0). However, euro trading was focused more on the still negative current conditions index while the firm dollar also depressed euro moves overnight. GBP was in cautious trading ahead of the UK inflation data and FOMC this week.

Asia-Pacific: The CNY was slightly weaker yesterday as the focus turned towards Japan’s policy decision while the dollar was mostly supported. Before the opening, PBOC set the midpoint USDCNY at 7.0985 per dollar, 42 pips weaker than the previous fix. In Japan, BoJ shifted away from years of ultra-easy monetary policy and it abandoned its bond yield curve control policy as well as purchases of riskier assets, including exchange-traded funds. However, BOJ said it will continue buying "broadly the same amount" of government bonds as before. Meanwhile, the RBA held interest rates but signalled a lesser hold on tightening bias, saying it was not ruling out policy changes.

Malaysia: The ringgit continued to end lower against the firm US dollar ahead of FOMC and as Japan made its first rate hike in 17 years. However, the ringgit rose on the cross rates whilst the yuan was relatively supported.

Other Markets

Gold: Prices fell very slightly whilst the dollar was firm amid expectations the Fed will still hold the FFR unchanged this week.

Crude oil: Prices continued to rally, with sentiment remaining supported after the recent release of firm economic data in China and anticipation of OPEC+ output cuts. There's also news Iraq will reduce exports to compensate for overproduction above quota. Brent rallied by 0.6% and WTI by 0.9%.

Source: AmInvest Research - 20 Mar 2024