Snapshot Summary…

Global Rates: Global bond yields shot up following the sticky US inflation data

MYR Bonds: Ringgit govvies weakened to follow suit with the weak global bond markets

Global FX: The dollar was weaker during the week but pared its losses as it found late support

USD/MYR: Ringgit pulled back from the prior week's weakening pressure

Fixed Income

Global Bonds: US Treasuries weakened further on a weekly basis despite a paring of losses last Friday. By Friday, the PCE Price Index and the core Index rose 0.3% m/m, as expected, in March, whilst the PCE index showed a rise of 2.7% y/y, surpassing expectations (2.6% y/y). Meanwhile, as expected, personal income rose 0.5% m/m in March, while personal spending at a larger-than-expected +0.8% (consensus 0.6%), lessening some of the pressure on bonds. Nevertheless, futures trading reduced its pricing of June Fed cut further, to slightly below 20% probability, down from about 30% two weeks prior. Earlier last week, data included the advance 1Q2024 GDP at a smaller increase seasonally adjusted annual rate of 1.6% (consensus 2.4%) against 3.4% in 4Q2023 because personal consumption expenditure growth at 2.5% was weaker than expected. On the other hand, the GDP Price Deflator accelerated to 3.1% from 1.6% in 4Q2023.

Malaysian Government Bonds: The MGS and GII yield curve was lifted, up as much as 8 bps on shorter tenors, while the IRS curve shifted up at a similar pace as well, to go alongside the weak sentiment in the global bond markets amid lessened expectations of a June Federal Reserve rate hike. Meanwhile, the reopening of GII 09/26 was weak and garnered only 1.746x BTC, while the sell-off carried on post-auction.

Malaysian Government Bonds View: We anticipate a cautious incoming week for bonds, as the week will be event- and data-heavy and could limit yield movements. This week, we have US ISM data, the FOMC meeting, and the April non-farm payrolls. That being said, at 3.63% on the 3Y MGS, that is 63 bps spread over the OPR. The widest on the 3Y MGS-OPR spread was 70 bps last October. Meanwhile, the 10Y-3Y MGS spread is now 37 bps, whereas the recent widest spread was 47 bps in February. Assuming the 10Y finds support at 4.00%, then we may be on the lookout for bargain hunting on the 3Y MGS.

Malaysian Corporate Bonds: Corporate bonds were traded weaker last week to reflect the sentiment in the MGS and the global bond markets. By the middle of last week, we noted AAA down to single-A rated yields werehigher by 1-4bps w/w. This is half the pace of the upward shift in MGS yield, while we also noted a lack of net selling pressure on AAA papers.

Malaysian Corporate Bonds View: We expect more consolidation of higher-grade names in the short term. In this scenario, GG and AAA names should see sustained realignment along their curves; for instance, GG Danainfra has some tranches traded below its indicative curve.

Forex

DXY Index: To note, along the week, the DXY was pressured to perform lower following the underwhelming flash S&P Global PMI and 1Q2024 1st advance estimate figures. However, the DXY index (Dixie) found late support on Friday after US inflation data showed mixed upside surprises and pared early losses. This week, we posit that market players would bid the dollar against other currencies on a cautious tone ahead of job market reports and an anticipated hawkish tone by the Fed from its policy meet-up as inflation remains sticky and away from the Fed’s target.

Europe: Against the lower dollar, the EUR and GBP both took advantage to rally after subdued movements in the prior week. It was also supported by some upside surprises on Flash S&P Global PMI for the Eurozone and the UK. But the risk for these currencies is tiled towards the downside this week on the upcoming Fed’s policy meeting. Data-wise, flash Eurozone’s 1Q2024 GDP and April’s inflation rate could be the headline, but the market is already pricing in June’s first cut for the ECB, which contrasts with the US Fed key rates outlook.

Asia: Asian currencies mainly were weakened except for a few; IDR, KRW, INR, AUD, and NZD strengthened. After last Friday's BoJ meeting, the JPY sank to the 158 level as the BoJ inaction. During the previous meeting, it maintained its benchmark short-term interest rate at -0.1% following its inaugural rate hike in 17 years. This translates into 2.4% drop w/w. The yuan was also on the downside, as traders were focused on the dollar following the report, which showed still stubborn US inflation. The AUD rallied 1.8% after 1Q2024 inflation, which surprised the market and pressured the RBA to maintain its restrictive policy.

Malaysia: The USD/MYR pair managed to pull back from its recent multi- year lows reached during the prior week, attributed to the mixed economic growth data released by the US, which prompted growth concerns among investors. The ringgit closed the week at 4.765. We think that the ringgit’s trend direction could be volatile this week, but will remain below the 4.80 level.

Source: AmInvest Research - 30 Apr 2024