Snapshot Summary…

Global FX: The dollar fell amid the release of the weaker-than-expected April NFP and the April ISM services index

Global Rates: The UST market rallied on Friday as the April NFP was printed at the smaller rise of 240k versus the 250k consensus forecast and 303k in March

MYR Bonds: Bonds were supported ahead of the April NFP data release as traders were anticipating a lower number versus consensus expectations

USD/MYR: The MYR saw sustained support post-FOMC meeting as the better risk appetite also aided other regional currencies

Macro News

United States: The April non-farm payrolls (NFP) increased by 175k (consensus 250k). The 3M average fell to 242k from 269k. The March number was revised higher to 315k from 303k, but February's was revised lower to 236k from 270k. The April unemployment rate rose to 3.9% (consensus 3.8%) from 3.8% in March. April average hourly earnings rose 0.2% (consensus 0.3%) versus 0.3% in March. The disappointing NFP ended a series of firm jobs numbers and sustained the outlook for a Fed cut(s) later this year as the April number lessened concerns of an overheating US economy. According to CME data on futures trading, expectations of a September rate cut rose to about 70% from around 60% on Thursday.

United States: The ISM Services PMI fell to 49.4% in April (consensus 51.8) from 51.4% in March. The April reading marks the first contraction since December 2022. There are worrying signs of a contraction in services activity amid recent robust US inflation data. The final reading for the April S&P Global US services PMI hit 51.3, up from 50.9 in the preliminary reading, but this was a decline from 51.7 in March.

Fixed Income

Global bonds: The UST market rallied on Friday as the April NFP was printed at a smaller rise of 240k versus the 250k consensus forecast and 303k in March. Friday’s UST yield move saw the 2Y down by 6 bps to close at 4.82% and the 10Y down 7 bps to 4.51%. For the week, the 2Y shed 18 bps while the 10Y fell by 16 bps, thus raising the 10Y/2Y spread by 2 bps to -31 bps. For the coming week, there is a lack of pertinent data releases. However, the market will look forward to speeches from FOMC voters like Williams (NY), Barkin (Richmond), and Cook (Governor). The market also will face 3Y and 10Y notes and 30Y bond auctions.

MYR Government Bonds: Last Friday, the government bond market was supported ahead of the April NFP data release as traders anticipated a lower number versus consensus expectations. The past day's strengthening in the UST market after the FOMC meeting supported sentiment on local shores. We continue to note traders picking up longer tenor bonds as they view levels currently as attractive. This week, Thursday’s BNM monetary policy committee is widely anticipated to see the central bank holding the OPR unchanged, and our and the market’s view is that BNM will holdthe OPR up to the end of the year, thereby having little influence on bond sentiment for now.

MYR Corporate Bonds: Corporate bonds continued to see a lack of support while volume traded fell to MYR381 million on Friday from MYR423 million on Thursday. We noted more net selling activity on higher-grade names. These include 04/31 and 07/33 SEB (AAA), which realigned at +10 bps and +1 bps, respectively, to close at 4.01% and 4.11%. Also, shorter tenor 11/25 PASB (AAA) rose 5 bps to 3.75%.

Forex

United States: The dollar index fell Friday to a 3-week low, decreasing by 0.3% to settle at 105.03. The dollar fell as bond yields also fell amid the release of the weaker- than-expected April NFP and the April ISM services index. Friday’s rally in the US stock market tempered the liquidity demand for the dollar, but there was a boost after comments from Fed governor Bowman, who said she was "willing to hike" if inflation stalls or reverses. She added that her baseline outlook for inflation is that it will decline even at the current ‘restrictive’ level of interest rate policy.

Europe: With the lower USD, the EUR appreciated and was dealt near its strongest since early April. The GBP also rose and was supported ahead of the BoE policy meeting set for 9 May, where the consensus expectation is for the central bank to hold the interest rate steady, as per a Reuters poll. However, if the BoE comes out of its meeting with a dovish slant to follow the Fed, it could be negative on the GBP, at least in the short term.

Asia-Pacific: Post the NFP, the JPY benefitted against the weaker USD. There is also short-term support for the JPY after speculation that the BoJ intervened to prop up the currency, which recently reached 34-year highs. The JPY was recently pressured after, late in April, the BoJ maintained its ultra-low rates policy. On Friday, Japan Finance Minister Shunichi Suzuki said that authorities may need to smoothen JPY movements and that excessive exchange rate moves are ‘undesirable’. Also seen higher last Friday was the AUD. Traders were also focused on Tuesday’s scheduled RBA policy meeting and expectations that policymakers will signal a hawkish bias given inflationary pressures.

Malaysia: Ahead of the NPF last Friday, the MYR saw sustained support post-FOMC meeting as the better risk appetite also aided other regional currencies. The weaker USD after the NFP should support MYR today while there’s little risk, in our view, from this week’s MPC meeting, as policymakers are unlikely to signal a shift in policy for now.

Other Markets

Gold: Gold continued to reverse from recent highs. Profit-taking activity was coupled with markets moving into riskier assets post-FOMC. Gold closed Friday by falling slightly 0.1% to close just above USD2,300 per oz.

Crude oil: Oil prices fell as traders took no deterioration in the Middle East as a good sign, especially as parties consider a temporary ceasefire while engaging in talks with international mediators. On the other hand, rising expectations of a Fed rate cut later this year pared the price decline on Friday.

Source: AmInvest Research - 6 May 2024