Snapshot Summary…

Global FX: The DXY was supported following the hawkish-sounding Fed meeting minutes

Global Rates: US Treasuries posted relatively mild losses overnight, led by shorter tenor papers

MYR Bonds: The ringgit government bond space was flat, with some ongoing profit- taking activities

USD/MYR: Ringgit lost grounds on Tuesday, ahead of Hari Wesak holiday

Macro News

United Kingdom: The UK's annual inflation rate dropped to 2.3% in April 2024, the lowest since July 2021, contrasting with March's 3.2% and market predictions of 2.1%. Reduced gas and electricity costs chiefly drove this decline due to the lowering of the energy price cap by the Office of Gas and Electricity Markets (Ofgem). The CPI increased by 0.3% m/m. UK manufacturers saw their factory gate prices for goods increase by 1.1% y/y in April 2024, picking up from a revised 0.7% rise in the prior month but falling short of the expected 1.2% growth. Refined petroleum products made the largest contribution, with an annual price increase of 13.3%, followed by increases in computer, electronic & electrical products, textiles, wearing apparel and leather products, and motor vehicles and other transport equipment. Monthly output producer prices rose by 0.2%.

Australia: Australian consumer sentiment marked a 2.4% decline, influenced by persistent inflation and high interest rates, with the index remaining below 100 for over two years. Economic outlooks for the next 12 months and 5 years also dipped, while expectations of rate cuts by the Reserve Bank of Australia later this year face uncertainty due to strong job data and increasing house prices. Cautious stance on rate adjustments, indicating a reluctance to cut rates despite easing concerns about further rises due to inflation.Japan: Japan's trade deficit widened to JPY 462.50 billion in April 2024, surpassing expectations of a shortfall of JPY 339.5 billion. Despite exports increasing by 8.3% y/y due to overseas demands, which fell short of the forecasted 11.1% rise, and imports expanding by 8.3%, notably due to increased purchases of mineral fuels, the deficit grew. This marks the fifth consecutive month of export growth, supported by continued shipments to key trading partners such as the US and China.

Fixed Income

Global bonds: US Treasuries posted relatively mild losses overnight, led by shorter tenor papers. Traders digested the latest FOMC meeting minutes, which discussed whether more tightening is needed as policymakers worry that the decline in inflation may be slower than expected. Traders were also swayed by the release of a stronger- than-expected UK inflation print. UK bonds were pressured, and yields remained near their highest for the month.

MYR Government Bonds: The ringgit government bond space was flat with some ongoing profit-taking activities whilst the Treasuries yield held above the 4.400% level following several Fed members indicating interest rates may need to be higher for a little longer. Meanwhile, the auction of the GII 15Y (09/39) was well received with a final BTC of 3.024x as players continued to support the back end of the curve while we suspect foreign players were looking for yield pick-up.

MYR Corporate Bonds: The ringgit corporate bond market saw modest support, led by AAA Cagamas. We think recent declines influenced traders in MGS and GII yields. Notable trades include 08/26 Cagamas (AAA), which fell 4 bps to 3.67% on MYR45 million flows, and 08/25 Cagamas (AAA), which fell a large 35 bps to 3.62% on MYR30 million volume.

Forex

United States: The dollar was supported by the release of hawkish-sounding FOMC minutes, which included discussion for higher for longer US interest rates and some policymakers also mulling a rate hike, which also led to risk-off sentiment in the market. The dollar movement largely ignored the release of existing home sales falling 1.9% m/m in April, whereas the consensus expectation was a 0.2% m/m decrease.

Europe: The euro was down against the stronger dollar on Wednesday. In addition, the euro was down after dovish comments from ECB President Lagarde, who said there is a "strong likelihood" of an ECB interest rate cut in June. However, the Bundesbank monthly report supported the euro, which included data showing a rise in negotiated pay in Germany in 1Q2024 of 6.2% against expectations of a 4.8% increase. On the other hand, the GBP gained slightly by 0.1% after UK inflation surprised the upside.

Asia-Pacific: Asian currencies were mixed against the dollar. The CNY weakened to its lowest level since the end of April after the PBoC set the yuan daily fixing at the lowest since 26th February. The Japanese yuan also depreciated 0.4% to 156.80 as the ‘higher-for-longer’ narrative for the US Fed solidified.

Malaysia: The Ringgit lost 0.2% on Tuesday, ahead of the Hari Wesak holiday, as investors were cautious before the release of recent Fed May meeting minutes. Today, we think the USD/MYR could be vulnerable to the downside as investors may be led to reassess their rate outlook after the release of hawkish-sounded meeting minutes. This morning, the pair opened at 4.6967.

Other Markets

Gold: The gold price fell 1.7% to USD2,379/oz, as the market now expects the Fed to hold an interest rate longer than anticipated.

Crude oil: Oil prices retreated amid risk-averse sentiment and a sell-off in US equities. Brent dropped 1.2% to USD82 per barrel, while WTI shed 1.3% to USD78 per barrel.

Source: AmInvest Research - 23 May 2024