Snapshot Summary…

Global FX: Dollar fell on suspected profit-taking after recent healthy gains due to firm US economic data

Global Rates: US Treasuries were closed mixed as the short-end part of the curve lagged

MYR Bonds: The local bond market traded mixed despite the surge in UST yields from the prior session

USD/MYR: Ringgit was weaker as it was held back against the firmer US dollar

Macro News

United States: New orders for durable goods in the United States saw a 0.7% increase compared to the previous month, contrasting with the anticipated 0.8% decline. This marked the third consecutive monthly uptick in durable goods orders, primarily driven by strong demand for transport equipment. Additionally, there was increased demand for computers and electronic products, fabricated metal products, machinery, and electrical equipment, appliances, and components. Meanwhile, orders for non-defence capital goods excluding aircraft, a key indicator of business spending plans, rebounded by 0.3% in April after a 0.1% dip in March.Japan: Japan's annual inflation rate declined to 2.5% y/y from 2.7% y/y, while the core inflation rate decreased to 2.2% y/y from 2.6%, which aligns with market expectations. The slowdown was attributed to softer food inflation, yet it remained higher than the Bank of Japan’s 2% target due to weak yen boosting import expenses. This marks the lowest reading since January. Consumer prices increased by 0.2% on an m/m basis, matching March's rate, remaining at the highest pace since last October.

Malaysia: Malaysia’s inflation rate stood unchanged for the third consecutive month, recording 1.8% in April 2024. This is primarily driven by the rise in food prices, alcoholic beverages and tobacco, housing, furnishing, household maintenance, health, transport, recreation, education, restaurants, and miscellaneous goods and services, albeit a marginal price reduction for clothing and communication. F&B inflation is returning higher than headline, which can be problematic for the government to be ambitious with subsidy rationalisation, in our view. Core consumer prices slightly increased to 1.9% y/y compared to the 1.7% rise in the previous month. The CPI rose 0.2%.

Fixed Income

Global bonds: On Friday, Treasuries were closed mixed after the market ended early, given the long weekend Memorial Day holiday. The shorter end of the UST curve was lagging as market players continued to price in delays in the US Fed interest rate cut. Meanwhile, the belly and back end of the curve posted marginal gains as a trading range for the day hovered near Thursday’s level. Despite the University of Michigan’s consumer sentiment survey being revised higher, we also saw muted reactions, and US durable goods orders grew faster than expected.

MYR Government Bonds: The local bond market traded mixed despite U.S. economic releases showing the economy has fared better than many expected recently. We reckoned that the local bond space should be supported in the near term as the current market condition is pricing in around 1 rate cut from the US Fed this year. Any downside surprise to the economic release from the U.S. will give an instant boost to the local bond market and vice versa.

MYR Corporate Bonds: Bullish trades overwhelmed the market despite mixed movements in the local sovereign space. Among notable trades were MYR30 million on 03/29 PTPTN, which was done at 3.76%, MYR20 million on 04/26 Sabah Development Bank (AA1), which was done at 4.17%, and MYR30 million on 10/31 MRCB (AA—), which was done at 4.63%.

Forex

United States: The dollar closed weaker on signs of profit-taking activity after recent gains on the back of firm US economic data and FOMC minutes, indicating possible higher rates for longer periods. The DXY index closed at 104.72 on Friday versus 105.11 on Thursday. The US will be closed on Monday for Memorial Day, but the rest of the week will see more macroeconomic data on tap, including April PCE inflation data.

Europe: The euro and British pound fell 0.1% as the dollar strengthened and the market became focused on the US interest rate outlook. The flash PMI suggests business activities in the Eurozone continue to improve, with the manufacturing sector's ongoing decline slowed considerably. Meanwhile, the manufacturing sector in the UK experienced growth for the first time since 2022.

Asia-Pacific: The yuan remained weak and hovering near past month's lows after the release of upbeat US economic data, while there was also some caution as China conducted military exercises around Taiwan. The PBoC also fixed its daily yuan reference rate before the market opened at 7.1102 per dollar, weaker than the previous fix of 7.1098. Meanwhile, the yen was steadier but remained weaker w/w. The national CPI released was mainly in line but sustained a slower inflation growth rate, which could land below the 2.0% target and challenge BoJ’s plan to tighten its monetary policy later on.

Malaysia: The ringgit was weaker last Friday as it was held back against the firmer US dollar after the robust US PMI data release. The ringgit mirrored the trading movement of most Asian currencies. Malaysia's CPI was released at 1.8% y/y in April vs. 1.9% y/y consensus and 1.8% y/y in March, which added to the cautious ringgit trading.

Other Markets

Gold: The recent hawkish Fed meeting minutes and healthier-than-expected US economic data prompted investors to focus on yields rather than the precious metal. The gold price was stable at USD2,334/oz on Friday but posted the largest weekly losses in 2024.

Crude oil: Brent and WTI posted decent gains of 0.9% and 1.5% on Friday, respectively. Despite that, they remained near their lowest level since February as market players weighed quieter geopolitical risks.

Source: AmInvest Research - 27 May 2024