AmInvest Research Reports

Fixed Income & FX Research - 17 May 2024

AmInvest
Publish date: Fri, 17 May 2024, 10:29 AM
AmInvest
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Snapshot Summary…

Global FX: The dollar rebounded as the UST yields went higher

Global Rates: Treasuries posted slight losses. There were hints of profit-taking activity after the recent rally

MYR Bonds: Ringgit government bonds registered a firm strengthening with heavy volume on selected sovereign benchmark papers

USD/MYR: Ringgit marked the sixth straight day of rallying and crossed the 4.70 level yesterday

Macro News

United States: US import prices surged stronger than expected by 0.9% m/m compared to the previous month, marking the highest increase since March 2022. Fuel import prices notably rose by 2.4% m/m. Non-fuel import prices climbed by 0.7% m/m, driven by increased costs across various sectors, including industrial supplies, foods, automotive vehicles, capital goods, and consumer goods. Import prices increased by 1.1% y/y. The Philadelphia Fed Manufacturing Index dropped to 4.5 from the previous month's 15.5. New orders declined to -7.9, marking the first negative reading since February. The price index indicated overall price increases but remained below long- run averages. Industrial production remained nearly unchanged in April, following a 0.1% m/m increase in March. Manufacturing and mining output declined by 0.3% and 0.6%, respectively. Building permits in the United States fell by 3% m/m.Japan: Japan's GDP contracted by 0.5% q/q, missing market expectations of a 0.4% decline. Private consumption, the largest contributor to the economy, decreased by 0.7%, attributed to high living costs, stagnant wages, and the impact of a recent earthquake. Capital expenditure also fell by 0.8%, slightly stronger than expected by 0.7%, mainly due to reduced auto production following a scandal at Toyota's Daihatsu Motor unit. Net trade contributed negatively to GDP, with exports declining by 5.0% and imports by 3.4%. However, government spending increased by 0.2% compared to a previous decrease of 0.2%.

Fixed Income

Global bonds: reasuries posted slight losses on Thursday. There were hints of profit taking activity, after the recent rally, and traders mainly shrugged aside weak economic data. These include weak GDP print in Japan, while in the US was housing starts at 5.7% m/m in April against +7.6% m/m expectation. However, traders did take heed to comments from NY Fed's Williams that the Fed will need more evidence to start rate cuts though admitting that inflation appear to be easing. Meanwhile, Richmond Fed's Barkin said rates need to be higher for longer to lower inflation towards the Fed's 2% target.

MYR Government Bonds: Ringgit government bonds registered a firm strengthening with heavy volume on select benchmark MGS and GII papers. Of these, the 10Y MGS shed 4 bps to close at 4.85% on nearly MYR500 million flows. The 10Y GII (GII 08/33) fell 3 bps to close at 3.87% on MYR810 million flows. The prior day's UST rally on the heels of the latest US CPI release aided MGS sentiment.

MYR Corporate Bonds: There was also better sentiment in the PDS segment to follow the MGS rally. Some banking papers and infra-related names led to the demand. Notable trades include 03/28 MMC Corp (AA-) (-3 bps to 4.03%) on MYR45 million volume. Along the GG space, 12/32 Prasarana fell 2 bps to 3.88%.

Forex

United States: Higher UST yields also raised the dollar, partly recovering from the previous session’s losses despite the initial jobless claims landing above market expectations. What helped the dollar to be bullish was the hawkish comments from Fed officials, particularly from Cleveland Fed Mester (saying it is prudent to hold interest rate now amidst cloudy inflation path) and Richmond Fed Barkin (noting the Fed needs “a little bit more time” to lower inflation to its 2.0% target. On the data front, import prices surged 0.9% m/m in April 2024, the fastest growth since March 2022 and beating the market forecast of 0.3% m/m (March 2024: +0.6% m/m), prompting worries on inflationary pressure.

Europe: The euro fell from its more than one-month high and chalked up modest losses as the market digested. ECB Governing Council member Hernandez de Cos commented that the “central scenario” is for a rate cut during the ECB’s next meeting on June 6th. The GBP also posted modest losses during the day.

Asia-Pacific: Asian currencies mostly took advantage and gained against lower USD from Wednesday’s session. However, the JPY was dealt weaker, taking a cue from the underwhelming 1Q2024 GDP growth data, a dovish challenge for the BoJ to hike its rate. The CNY was slightly weaker and closed at 7.221 as investors were cautious ahead of key Chinese economic data this Friday.

Malaysia: Ringgit opened at 4.688 and strengthened to 4.677 the day before, paring some gains to finish at 4.683. As the USD/MYR pair crossed below our 4.706 level, if the current momentum persists, we could see the pair trend lower further towards 4.660-4.665, our next technical support level.

Other Markets

Gold: Gold prices eased off a three-week high on Thursday as the dollar and yields rebounded, thanks to hawkish comments and the rise of import prices. The precious metal price fell 0.4% to USD2,377/oz.

Crude oil: Oil rose, with Brent and WTI inching higher by 0.6% and 0.8%, respectively, as market players continue to monitor the ongoing Middle East tension and the recent larger-than-expected drop in US oil inventories.

Source: AmInvest Research - 17 May 2024

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