Snapshot Summary…

Global FX: The dollar lost its ground after the release of “mixed” producer inflation data

Global Rates: US Treasuries posted modest gains on PPI data, and no more rate hike prospect

MYR Bonds: The ringgit government bonds market strengthened after the new 20Y auction

USD/MYR: Ringgit traded firmer again and closed at its highest level since early April

Macro News

United States: US factory prices surged by 0.5% m/m, surpassing the expected 0.3%, after a downwardly revised 0.1% decline in March 2024. Service prices surged by 0.6%, the highest since July 2023, driven by a 3.9% increase in portfolio management costs and rises in machinery, wholesaling, real estate services, automotive retailing, guestroom rentals, and freight transportation. Goods costs rebounded by 0.4% from a 0.2% March decline, mainly due to a 5.4% increase in gasoline prices and rises in diesel fuel, chicken eggs, power, and nonferrous metals. Core producer prices rose higher than expected by 0.5%. Annual headline producer price inflation remained steady at 2.2% y/y, while the core rate increased to 2.4% y/y from a revised 2.1% y/y.

United Kingdom: The UK's unemployment rate marginally increased as expected to 4.3% from 4.2%, marking the highest rate since 2Q2023. 46,000 more people were unemployed, totalling 1.49 million. Additionally, the number of those unemployed for over 6 to 12 months and over 12 months also increased. Conversely, employed individuals rose by 17,000 to 33.0 million, mainly fuelled by an increase in full-time workers, while part-time employment decreased. The economic inactivity rate dropped by 0.1% point to 22.1%.

Fixed Income

Global bonds: US Treasuries posted modest gains on Tuesday despite the stronger- than-expected April PPI reading. There was a net selling momentum upon the PPI release, but Treasuries soon recovered. Traders also heard the latest comments from Fed chair Powell, who repeated his view that there will be no rate hikes. Powell also said that the April numbers' PPI was ‘quite mixed’. Aside from that, 10Y Bund yields ended 4 bps higher overnight. Germany reported its CPI for April was +0.6% m/m, which was in line with expectations and the March pace, but also up 2.4% y/y, which is in line with consensus but slightly higher versus +2.3% y/y in March.

MYR Government Bonds: The ringgit government bonds market strengthened following the MYR3.0 billion (plus MYR2.0 billion PP) auction of the new 20Y MGS (MGS 05/44) was firmly in demand where the final BTC came over 3X. The MGS curve was additionally supported by in range UST yield movement during the Asian session yesterday.

MYR Corporate Bonds: Malaysia's corporate bond market remained mixed yesterday. With credit spreads remaining tight on the back of noted demand on variousAAA to single-A-rated names last week, we suspect sentiment in the market yesterday was cautious as flows centred on yield realignment. Notable trades yesterday include 03/33 TNB Power Gen (AAA) at 4.04% (+3 bps), while we also noted 06/29 Tenaga shifted 8 bps higher to close at 3.88%. Meanwhile, on 07/28, Sarawak Energy (AAA) rose 10 bps to 3.84%.

Forex

United States: Following April’s producer inflation growth data release, the dollar lost its ground and dropped towards the 105.0 line. We posit that the market was reacting more towards the sharp downward revision of the previous number than the faster- than-expected growth in the current month. In addition, Fed Chair Jerome Powell, in his speech, called the PPI report to be “mixed” rather than “hot”. In his speech, he also noted that the Fed will not raise interest rates for the next move; instead, it is more likely to hold interest rates where they are. As such, we think that the upside for the dollar is limited now despite the sticky inflation, and it is more vulnerable to downsides.

Europe: The euro and British pound were on a rallying trend, closing Tuesday at their highest level in roughly five weeks against shaky Dixie. The slightly upbeat reading on the ZEW Indicator of Economic Sentiment for both Germany and the Eurozone provided some uplift for the euro. The GBP's sentiment was buoyed by the higher wage growth and unemployment rate.

Asia-Pacific: We noticed that Asian currencies were mainly mixed as the dollar was partly lacking support. But the CNY traded weaker after PBoC set its daily yuan fixing at 7.1053, weaker than the previous fix of 7.1030, and after US President Joe Biden announced fresh US tariffs, including major tariff hikes on EV products and other strategic products. In Japan, the yen depreciated 0.1% despite Japan's Finance Minister's remarks that the government and the BoJ will work closely together regarding currency matters, and they will closely monitor the yen and take “all possible measures” if needed.

Malaysia: Ringgit traded firmer again and closed at its highest level since early April. The intraday range was slightly wider at 4.711 – 4.734 vs the prior day's 4.727 – 4.748. More good news in the US about the prospect of the Federal Funds Rate not being raised again seems to bode well for the ringgit.

Other Markets

Gold: Gold rebounded after the dollar and UST yields went down. The precious metal prices rose 0.9% to finish at USD2,358/oz.

Crude oil: Oil fell, with Brent shedding 1.2% and WTI dipping 1.4%, after OPEC reiterated its forecast of a 2.2 million barrel rise per day in 2024 demand.

Source: AmInvest Research - 15 May 2024