Snapshot Summary…

Global FX: The dollar kept up its appreciation amid strong US retail sale data release and liquidity demand on the back of lower stock markets (S&P500 index down 1.2%)

Global Rates: The driver for UST losses was the better-than-expected US retail sales, while there is a lack of serious escalation in the Middle East conflict to drive UST safe haven demand

MYR Bonds: The MGS market was steady and moved within a narrow range

USD/MYR: Like other regional currencies, the ringgit remained weak amid the current dollar rally

Macro News

US: The US reported advance retail sales rose by 0.7% m/m in March, higher than the consensus expectation of 0.4%. Meanwhile, the February number was revised higher to +0.9% m/m from the prior estimate of +0.6% m/m. Retail sales ex-autos rose a firm 1.1% m/m versus +0.5% m/m consensus, while the February pace was revised higher to +0.6% m/m from +0.3% m/m prior estimate. On the other hand, the Empire State manufacturing index was worse-than-expected at the reading of -14.3 for April versus the -5.2 consensus expectation, though higher than the prior month’s -20.9.

Europe: The Eurozone's industrial production for February rose 0.8% m/m, which is in line with expectations, but it was up from the prior month’s -3.0%. However, on a worrying note, industrial production still fell by -6.4% y/y, which was weaker than estimates of -5.5%. The prior month’s y/y pace was -6.6%.

Fixed Income

Global bonds: Treasuries closed weaker, with the 10Y UST yield climbing 8 bps to close at 4.60%, whilst the 2Y was testing the 5% level but closed 2 bps higher at 4.92%. Driver for the UST losses was the release of better-than-expected retail sales, which rose 0.7% in March versus +0.4% consensus and the prior month’s upward revised +0.9%. There was less safe-haven demand from the Middle East conflict, which has not escalated as widely feared so far, where we also noted crude oil prices closed lower on the day.

MYR Government Bonds: The MGS market was steady and moved within a narrow range from their previous closing despite a cautious sentiment alongside the emerging geopolitical risks. However, there was some support from UST, which strengthened last Friday.

MYR Corporate Bonds: Despite some support in the MGS space yesterday, risk appetite was largely absent, and sending ringgit corporate bonds mostly weaker. We noted profit-taking activity on various names, including higher-grade AAA papers. These include AAA-rated PLUS 01/36 and 01/37, higher by 2-3 bps. Also, 12/31 MAHB (AAA) rose 1 bp to 4.02%.

Forex

United States: The dollar kept up its appreciation, seeing up 0.2% on the DXY, which closed at 106.21. There was added demand for dollar liquidity amid the lower stock markets (S&P500 index down 1.2%), whereas the release of better-than-expected retail sales data also aided the dollar. This was despite hopes for diplomatic efforts to contain the Middle East conflict and a more dovish comment from NY Fed’s Williams, who said there’s a ‘need’ to start the process to cut rates ‘likely this year’.

Europe: The EUR remained pressured by the strong dollar, as well as after some ECB policymakers signalled their support for a rate cut by June. Although ECB Governing Council member Kazimir said Europe’s economic recovery is taking hold, he also said inflationary pressures are retreating and may open the door for the June cut. Meanwhile, according to data released, the number of Eurozone industrial production rose by 0.8% m/m in February, as expected.

Asia-Pacific: The yuan remained pressured by the strong dollar but found support and rebounded slightly from three-week lows as the PBoC kept its one-year medium-term lending facility rate at 2.5%, as widely expected. The currency also continued to be supported by purchases by state-owned banks, as per reporting by Reuters. Meanwhile, the yen weakened further and found itself above the 154 level. There was pressure on the yen amid news reports suggesting that the BoJ is wary of raising rates too soon and may avoid rate hikes even if inflationary pressure increases.

Malaysia: The ringgit remained weak, like other regional currencies, amid the current dollar rally. The closing for USD/MYR yesterday was 4.780.

Other Markets

Gold: Gold prices rose again after the drop in profit-taking pressure the day before. Prices are suspected to remain buoyed by demand from major fund managers and central banks. Suspected demand for gold from central banks includes those at the PBoC, which is reportedly heard trying to defend the yuan.

Crude oil: Prices fell on Monday as markets await Israel’s response to the attacks. The lack of immediate reaction justified an oil price decline, though Brent remained hovering just above the USD90 per barrel level.

Source: AmInvest Research - 16 Apr 2024