Snapshot Summary…

Global FX: The dollar lost further ground as the US CPI and retail sales data disappointed

Global Rates: US Treasuries posted a firm rally on the back of weaker-than-expected macroeconomic data

MYR Bonds: Ringgit government bonds rallied across the curve post US PPI data

USD/MYR: The ringgit was supported yesterday as the dollar continued to weaken

Macro News

United States: US consumer prices rose by 0.3% m/m, slightly lower than 0.4% in the previous two months. The shelter index increased by 0.4%, while gasoline prices surged by 2.8%, contributing to over 70% of the CPI's monthly rise. Food prices remained unchanged, while motor vehicle insurance, medical care, and apparel saw increases of 1.8%, 0.4%, and 1.2%, respectively. Conversely, prices dropped for used cars and trucks -1.4%, household furnishings and operations -0.5% and new vehicles -0.4%.Eurozone: Industrial production in the Euro Area increased by 0.6% m/m following a revised 1% rise in the prior month, almost meeting market expectations of a 0.5% growth. This signifies the second consecutive monthly expansion in the region's industrial output, albeit at a slower pace than the previous month. Output grew for capital goods but declined for non-durable and durable consumer goods, energy, and intermediate goods. Yearly industrial production contracted by 1% in March, following a revised 6.3% decline in the previous month compared to a 1.2% decrease in the market expectation. Also, the Eurozone flash 1Q2024 GDP was a growth of 0.3% q/q, which is in line with expectations (previous quarter-0.1%), and growing 0.4% y/y, also in line (last 0.1%).

Fixed Income

Global bonds: US Treasuries posted a firm rally on the back of weaker-than-expected macroeconomic data. The April headline CPI was lower than estimated on a m/m basis, while the April retail sales report also disappointed (unchanged in April versus +0.4% m/m expectation). In addition, bonds also felt support from a sluggish crude oil price movement. Yields fell below their 50-day moving average as the 10Y UST slipped below 4.40%. The Atlanta Fed GDPNow forecast for 2Q2024 GDP was revised to 3.8% from 4.2%.

MYR Government Bonds: The ringgit government bond market rallied across the curve after the US PPI data release, noticing the 10Y UST fell by 5 bps overnight. Yesterday, the 10Y MGS shed 2 bps to slip below 3.90%, while the 5Y IRS was spotted lower by 5bps as markets focused on US PPI numbers of the previous month, which was revised lower to -0.1%.

MYR Corporate Bonds: Malaysia's corporate bond market saw mostly firmer trading except for profit-taking activity on some high-grade papers. Heavier flows were noted yesterday on papers such as 07/35 Edra Energy (AA3), which fell 2 bps to 4.25%, and04/31 Sarawak Energy (AAA), which rose 1 bps to close at 3.98%. Also, on the GG space, 10/32 Danainfra fell 5 bps to 3.92%.

Forex

United States: The USD fell, registering -0.6% on the DXY index, which closed at 104.35. Compared with a week ago, the index is down 1.1%. The release of disappointing economic data, including the April CPI and retail sales numbers, slightly raised hopes for a September FOMC interest rate cut. Futures trading pricing is at 63.5% probability of a September cut overnight and up from 61.0% the day before. In addition, a rally in US equities, where the S&P500 rose 1.2%, meant less demand for dollar liquidity on the day.

Europe: The EUR and GBP rose against the weaker USD; the EUR/USD was up 0.6%, and GBP/USD was up 0.7% overnight, respectively. Supporting sentiment for the EUR was Eurozone flash 1Q2024 GDP, coming in line with expectations at +0.3% q/q versus contractions of -0.1% each in the previous two quarters. ECB policymaker de Galhau raised hopes for a June rate cut, while policymaker Muller said that a June cut is probable, though the direction of interest rates till the end of 2024 is harder to predict.

Asia-Pacific: The CNY was supported yesterday amid a weaker USD. The PBoC maintained its 1-year medium-term lending facility rate, which was expected to be 2.5% yesterday. There remains pressure on CNY after the US decision to impose tariff increases on various Chinese products. On the other hand, sentiment for CNY was aided yesterday by speculation that local governments may be directed to purchase unsold houses. The JPY gained 1.0% over the USD. However, this morning saw the release of Japan’s 1Q2024 GDP, which contracted at 0.5% q/q or larger than the consensus of -0.3%, while the prior quarter was revised down to 0.0% from the +0.1% initial estimate. USD/JPY today touched 154.16 but is now up to 154.50 area.

Malaysia: The ringgit was supported yesterday as the USD/MYR pair fell 0.2% to close at 4.706. Raised prospects for the Federal Funds Rate not to be raised and a rising view for a September rate cut seem to bode well for the ringgit. In any case, the market awaits tomorrow’s 1Q2024 GDP final print. We think Malaysia's growth could come in higher at 4.1% (versus DOSM's advance estimate of 3.9%) due to continuous expansion in private consumption.

Other Markets

Gold: Gold rose further overnight, up by 1.2% after a 0.9% rise the day before, amid raised prospective demand for the metal on the outlook for lower interest rates.

Crude oil: Oil prices rose, with the WTI up 0.8% to USD78.63 per barrel. Crude markets were mulling anticipated firm demand, and the EIA report noted that US crude inventories fell by 2.5 million barrels last week.

Source: AmInvest Research - 16 May 2024