Snapshot Summary…

Global Rates: Yields fell after the latest FOMC meeting and print of disappointing US jobs data

MYR Bonds: The UST rally positively affected Malaysia’s government bonds

Global FX: With the FOMC and jobs report reinstating the outlook for Fed rate cut(s) this year, the DXY index fell from recent highs

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

Fixed Income

Global Bonds: US Treasuries strengthened with the 10Y UST closing at 4.51%, or down 16 bps w/w, while the 2Y UST shed 18 bps w/w to close at 4.82%. Yields fell after the latest FOMC meeting signalled a dovish-biased stance. Fed chairman Jerome Powell indicated that though policymakers want more signs that inflation is approaching its target, he signalled that a rate hike is unlikely, while the US economy is not facing a stagflation situation. Also, the Fed will slow the pace of its “balance sheet runoff”; starting 1 June 2024. It will reduce the cap on Treasury securities it allows to mature (and not be replaced) to USD25 billion per month from USD60 billion. Yields further fell with a print of the latest non-farm payrolls (NFP) and unemployment data. The April NFP rose by 175k (consensus 240k). 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. For the coming week, there is a lack of pertinent data releases. However, there will be speeches from FOMC voters like Williams (NY), Barkin (Richmond), and Cook (Governor). The market also faces 3Y and 10Y notes and 30Y bond auctions. Hence, we think the UST market may show limited gains in the coming week.

Malaysian Government Bonds: The UST rally positively affected Malaysia’s government bonds, where the w/w dip was about 2-5 bps. Moreover, the positive sentiment aided the traders in picking up longer tenor MGS papers as they view levels currently as attractive.

Malaysian Government Bonds View: 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 hold the OPR up to the end of the year, thereby having little influence on bond sentiment for now.

Malaysian Corporate Bonds: Corporate bonds were traded mostly weaker as they lagged the sentiment in the MGS and the global bond markets. We noted that various AAA and AA papers were being sold.

Malaysian Corporate Bonds View: This week, we expect better sentiment in the PDS segment, brought on by an improved appetite for bonds given the post-FOMC and NFP rally. We are looking to see if there will be more realignment on medium to longer tenor GG Danainfra, especially after net buying interest on long-dated MGS last week (Exhibit 2).

Forex

DXY Index: With the FOMC and the jobs report reinstating the outlook for Fed cut(s) later this year, the dollar subsequently fell, and we noted that the DXY index fell from recent highs to below the 106 level. The index fell 0.9% w/w to settle at 105.3. Our outlook for the coming week is for the USD to remain soft, but markets could react to Fed-speak, which is scheduled this week.

Europe: Against the weaker USD, we noted EUR and GBP showing appreciation vis-à-vis the greenback. The EUR was dealt to near its strongest since early April while the GBP 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, then it could be negative the GBP, at least in the short-term horizon, in our opinion. As for the broader EU, data this week will include services PMI, retail sales, and producer price levels. Asia: Asian currencies also rose against the weaker USD, starting after the FOMC and continuing with a print of the NFP. For the JPY, there was a boost to its levels on suspected BoJ intervention to buy up the currency during midweek and possibly continuing later last week. Our outlook for the JPY in the coming week is for modest support. The AUD was also seen higher last week, and we expect some strength to continue up to this week’s scheduled RBA policy meeting and expectations that policymakers will signal a hawkish bias in view of inflationary pressures.

Malaysia: The MYR saw sustained support post-FOMC meeting as the better risk appetite aided other regional currencies. The weaker USD after the NFP should support MYR this week 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. We foresee support for the MYR at 4.773, while resistance is likely at 4.711.

Source: AmInvest Research - 7 May 2024