Snapshot Summary…

Global Rates: Global bond markets gain on the anticipation of global central banks to rate cut this year

MYR Bonds: Malaysia government yields fall by about 2 bps for the week

Global FX: Dollar posts second straight weeks of gains as economic data showed US economic resiliency

USD/MYR: The ringgit fall and approaching 4.74-level

Fixed Income

Global Bonds: Major global bond markets rallied last week on the back of central banks' aim for interest rate cuts later this year. The focus was on the Fed leaving its FFR at 5.25%-5.50% range. The decision not to shift the FFR was widely expected, but markets focused more on the Fed reiterating its aim to cut interest rates by three times this year. Fed Chair Jerome Powell was heard describing the current level of rates as “restrictive”. As for the ECB, President Lagarde expressed that policymakers will consider bringing interest rates down by June but sketched an uncertain path beyond that.

Malaysian Government Bonds: Malaysian government yields fell by about 2 bps for the week. As opposed to FX market volatility, we think the bond market is taking a more sober view of interest rate direction, recognising the rising potential for the Fed to cut rates later this year, irrespective of short- term macro data variations. Reflecting the upbeat sentiment, the auction of a new benchmark 30Y GII (MYR3.0 billion with MYR2.0 billion PP) garnered a strong BTC of 3.187x, partly attributed to the paper itself as new issuance to the market and investors' appetite towards the longer-dated papers.

Malaysian Government Bonds View: We think profit-taking pressure may arise, especially on the bellies and far end of the curve. However, we think the front of the curve will hold. With the OPR at 3.00%, the 3Y MGS should find buyers around 3.45% for now.

Malaysian Corporate Bonds: Overall sentiment for corporate bonds was also upbeat, guided by the outlook for declining global rates. We noted that indicative PDS yields were down by about 1-4 bps last week.

Malaysian Corporate Bonds View: We think higher grade infra-related names should remain bid in the coming week, such as select GG Prasa with 2031-2038 maturities (Exhibit 2). Meanwhile, tranches of select AAA infra- related such as Amanat Lebuhraya, Pengurusan Air Selangor/Pengurusan Air SPV, and Tenaga-related companies may also find more buyers (Exhibit 7).

Forex

DXY Index: Post-FOMC meeting, the dollar lost its ground as the Fed officials insisted on three rate cuts this year, according to the updated dot plot projections. However, some late support was found in the week as both PMI Manufacturing and Services PMI data showed the US being in expansionary mode compared to other major economies. In addition, the number of people claiming unemployment benefits was lower at 210K, compared to the previous reading of 212K and the market forecast of 215K. We also think that the further upward drive for the dollar was a dovish shift by a series of central banks, including the BoE (no more policymakers voting for rate hikes) and the PBoC (weaker yuan fixing). This week, the focus will be on the Fed's preferred inflation gauge, February’s monthly PCE and the Core PCE Price Index.

Europe: The GBP dropped 1.1% on the week as the swing by the BoE from a hawkish tone to laying down the groundwork for an upcoming rate cut appeared unfavourable for the British pound. Most hawkish policymakers no longer call for rate hikes, a sign of a turnaround. Market players are now pricing in the BoE, which will deliver its first rate cut in June. In the meantime, the EUR is also on the downside against the stronger dollar. On the data side, the Eurozone flash March Manufacturing PMI fell to 45.7 (consensus 47.0; last 46.5). PMI index levels below 50 indicate a contraction in manufacturing or services sector activities.

Asia: Immediately after the BoJ decided to exit its negative interest rate policy and bring the key interest rate to 0.0% (though still accommodative), the yen was muted as traders had already priced in the move before the meeting. During the same meeting, the central bank abandoned its bond yield curve control policy and purchased riskier assets, including exchange- traded funds. However, BOJ said it will continue buying "broadly the same amount" of government bonds. In China, the yuan ended the week above the 7.20 level, a closely watched psychological resistance level after PBoC fixed the daily yuan reference rate above the 7.10 level, the weakest fix since early March 2024. In the meantime, the Australian dollar and New Zealand dollar were on the back foot against the firm dollar. Last week, the RBA maintained its cash rate at 4.35%, which is in line with the market forecast, alongside neutral forward guidance, as the board members said that the interest rate path remained uncertain and is not ruling anything in or out. The SGD also weakened 0.8% to finish the week at 1.349.

Malaysia: The ringgit showed strength earlier in the week, receiving a slight boost as Bank Negara Malaysia (BNM) released its latest annual report, and the central bank signalled its aim to aid the ringgit sentiment. Recent moves include encouraging the repatriation of foreign earnings by GLCs and GLICs. BNM Deputy Governor Datuk Marzunisham Omar said Malaysia will not face a balance of payments crisis as the country has consistently recorded current account surpluses. However, it weakened later during the week to complete a weekly loss and finished Friday at 4.737 as the dollar demand rebounded.

Source: AmInvest Research - 26 Mar 2024