AmInvest Research Reports

Fixed Income & FX Research - 18 Apr 2024

AmInvest
Publish date: Thu, 18 Apr 2024, 04:34 PM
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Snapshot Summary…

Global FX: The dollar fell to follow the drop in UST yields

Global Rates: Global bonds mostly rallied on Wednesday as Treasury yields fell from their highest levels of the year

MYR Bonds: The Ringgit PDS market was pressured, in tandem with the weakness in the sovereign space

USD/MYR: The pair fell for the first time in four straight sessions

Macro News

United Kingdom: The annual inflation rate for March decreased to 3.2% y/y, a more modest reduction than anticipated and above the market forecasts of 3.1%. This decline, from February's 3.4%, marks the lowest rate since September 2021, primarily driven by a slowdown in food price increases. Despite this easing, inflation remains above the central bank's target of 2%, influenced by higher fuel costs and persistent service sector inflation. The rate decrease has prompted the financial markets to adjust expectations, pushing the anticipated timing of the first interest rate cut from June to September and November.Japan: The Japanese Reuters Tankan index showed that business confidence among major Japanese manufacturers and service sector firms declined during April 2024. This dip was influenced by heightened cost-of-living concerns and uncertain economic conditions in China, a key market for firms. The survey, which reflects the sentiment from April 3 - 12, reported a decrease in the manufacturers' sentiment index to +9 from +10 and a drop in the services sector index to +25 from +32, despite some gains in retail.

Malaysia: The International Monetary Fund (IMF) revised the outlook for Malaysia’s GDP growth upward to 4.4% in 2024, from 4.3% prior projections, to follow the upward revision on global growth at 3.2%, compared to a previous forecast of 3.1%. However, the agency said that global growth is low by historical standards, owing to both near- term and longer-term factors.

Fixed Income

Global bonds: Bonds rallied on Wednesday, and Treasury yields fell from their highest levels of the year. Overnight saw support from the UK and the Eurozone deceleration in their inflation y/y growth rates. Meanwhile, there was modest support for bonds as the Federal Reserve released its April Beige Book, showing that the US economy grew slightly since February and moderating wage pressure.

MYR Government Bonds: The Ringgit government market continues to be pressured as the prior day saw US bond yields sustaining their YTD highs. Sentiment was also pressured by signals from Fed Chairman Powell that restrictive monetary policy is needed as inflationary pressures remain.

MYR Corporate Bonds: Weak sentiment in the global bond space, including in the Malaysian government bond market, meant the ringgit corporate bond market remained pressured. Various names were dealt lower, including higher grade AAA bonds and infra-related names. Notable trades include 06/30 Gamuda (AA3), which rose 7 bps to 4.01% and 04/29 IJM (AA3), which rose 1 bps to 4.04%.

Forex

United States: As US bond yields fell, especially after the release of weak UK and Eurozone inflation, the dollar also fell as the Dixie slipped to below the 106 level, the first decline in six days. However, the weakness in the dollar was contained in federal funds futures trading, and the probability of a Fed rate cut at the June FOMC meeting dropped to 19% from 66% at the start of the month.

Europe: EUR and GBP took advantage of the lower dollar. Comments from ECB officials were mixed; ECB President Lagarde said output in the Eurozone is "recovering, and we are seeing signs of recovery”, while ECB Governing Council member Holzmann said he's "not fully" convinced of a June cut as rising risks from the Middle East could drive inflation further upwards. However, ECB member Centeno said it may be time for a change to monetary policy due to weak economic growth and progress on inflation. In the UK, BoE Governor Andrew Bailey said the UK faces less inflation threat than the US, opening up the possibility for a rate cut before the Fed moves.

Asia-Pacific: Asian FX were mixed while the dollar was weaker yesterday. The CNY was dealt above 7.230. There was continued support from PBoC as the midpoint rate was 7.1025 versus the dollar, firmer than the previous fix of 7.1028. According to Bloomberg, state-owned banks ramped up dollar selling after the CNY was traded above 7.24 during the Asia session.

Malaysia: The USD/MYR pair fell for the first time in four straight sessions and partly erased some of the recent gains, but it is still near February’s more than two-decades high amidst lesser expectations for rate cuts by the US Fed.

Other Markets

Gold: Gold prices fell 0.9% to USD2,361/oz as traders price in “higher-for-longer” rates play.

Crude oil: Brent surged from 3.0% to USD 87 per barrel after data showed that US crude inventories rose from 2.7 million to 460 million per barrel, above market expectations of a 1.4 million barrel build-up.

Source: AmInvest Research - 18 Apr 2024

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