AmInvest Research Reports

Fixed Income & FX Research - 20 May 2024

AmInvest
Publish date: Mon, 20 May 2024, 05:02 PM
AmInvest
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Snapshot Summary…

Global FX: The DXY posted marginal losses on Friday, falling 0.02%, at 104.45 points

Global Rates: US Treasuries closed last Friday on modestly weaker levels amid some profit-taking activity

MYR Bonds: The ringgit government bond market consolidated around the prior day’s levels and after the recent rally

USD/MYR: Ringgit snapped its six-day rally and weakened 0.1%

Macro News

Malaysia: Malaysia's gross domestic product (GDP) grew by 4.2% in the first quarter of 2024, according to DOSM, which is slightly faster than the median Bloomberg consensus of 3.9% and a tad higher than our forecast of 4.1%. This growth was primarily driven by higher private expenditure and a recovery in exports. In the previous quarter (4Q2023), Malaysia's GDP growth was 2.9%, and in the first quarter of 2023, it was 5.6%. It was highlighted that higher household spending in said quarter was supported by continued growth in employment and wages. Investment activities were robust due to increased capital spending by both private and public sectors. Additionally, exports rebounded due to higher external demand and most sectors registered growth.

China: China's latest economic data reveals a mixed picture. Retail sales grew 2.3% y/y in April 2024, falling short of the 3.8% market forecast and slower than from 3.1% in March. Industrial production, however, expanded 6.7%, surpassing market expectations of 5.5% growth and a faster increase from 4.5% in March. According to the National Bureau of Statistics, major indicators in industry, exports, employment, and prices showed an overall improvement, with new driving forces maintaining rapid growth. However, consumer caution persists due to uncertainties about future income and other factors, though improving employment data and growth in services consumption suggest potential for future retail sales improvement.Eurozone: The eurozone annual inflation rate for April 2024 remained stable at 2.4%, maintaining a level unseen in nearly three years, matching March's figure. This stability contrasted with the significantly higher rate of 7% recorded a year earlier. Notable changes included a slowdown in services costs and non-energy industrial goods by 3.7% and 0.9%, respectively. Alongside a -0.6% continued decline in energy prices. Conversely, prices for food, alcohol, and tobacco slightly increased by 2.8%. The core rate, excluding volatile components, experienced its 9th consecutive monthly decline, reaching its lowest since February 2022, at 2.7%. The Consumer Price Index (CPI) in the Eurozone rose by 0.6% compared to March.

Fixed Income

Global bonds: US Treasuries closed on modestly weaker levels last Friday amid some profit-taking activity. However, on a weekly basis, Treasuries still closed on a modestly firmer note. There was a lack of US data to drive sentiment. However, the release of in-line Eurozone CPI in April of +0.6% m/m and mixed China retail salesand industrial output data added some early net selling pressure on Treasuries. Aside, Bund yield rose amid Friday as ECB board member Isabel Schnabel said there is a risk against more rate cuts after the possible June cut. She argued that more inflation data is needed to convince the central bank to bring inflation towards the 2% target.

MYR Government Bonds: After the recent rally, the ringgit government bond market consolidated around the prior day's levels. Benchmark yields on 10Y MGS and GII each were higher by 1 bps on Friday. We noted that the front-end 3Y MGS was firmer by 3 bps, though the volume traded was less than MYR100 million. We believe releasing the solid quarterly Malaysia GDP did not deter demand for shorter-dated MGS, as BNM policy signals remain neutral for now.

MYR Corporate Bonds: The ringgit corporate bond market recorded mixed performance on modest volume traded last Friday. There was a focus on infrastructure and utilities-related papers. The heavier volume trades include 07/30 Sarawak Energy (AAA), which fell 1 bps to 3.95%, and 12/30 Air Selangor (AAA), which fell 13 bps to close at 3.94%.

Forex

United States: The DXY posted marginal losses on Friday, falling 0.02% to 104.45 after Atlanta Fed Raphael Bostic's dovish remarks, saying it would be appropriate to cut the interest rate this year but that it has not been decided yet. Furthermore, the downside in leading index data by the Conference Board and lower dollar liquidity due to a higher stock market were negative for the dollar.

Europe: The expectations for interest rate divergence between the ECB and the US Fed may have pushed the EUR lower. However, the hawkish sentiment of ECB member Isabel Schnabel’s speech helped the common currency rebound and post gains against the lower USD. This was also in tandem with higher German Bund yields. The GBP was bullish on Friday, ahead of the UK’s inflation and retail sales data later this week.

Asia-Pacific: The PBoC set the daily yuan fixing at 7.1045 per dollar before the market opens, which is weaker than the previous fix of 7.1020. This, coupled with mixed Chinese economic data released on Friday, has somewhat weakened the currency. The JPY also weakened 0.2% on the downside as sentiment continued to favour the dollar rather than the Japanese yen. However, the AUD stood its ground, gaining 0.2% for the day.

Malaysia: The ringgit snapped its six-day rally and weakened 0.1% to 4.688, although it remained supported below the 4.70 level. GDP data released last Friday showed faster growth compared to 4Q2023 data. We expect USDMYR to trend sideways and below the 4.70 level.

Other Markets

Gold: Gold rose 1.6% to USD2,415/oz, approaching a new record high as investors remained hopeful about the US Fed's interest rate cut prospects.

Crude oil: Oil rose, with Brent and WTI inching higher by 0.9% and 1.0%, respectively, amidst ongoing tight market concerns and geopolitical tension.

Source: AmInvest Research - 20 May 2024

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