Snapshot Summary…

Global FX: Dollar index retreated after the 1Q2024 US GDP and price index were revised lower

Global Rates: Major sovereign bonds rallied with UST curve supported by mixed-to- weaker US data

MYR Bonds: The local MGS/GII market saw subdued movements in its yields despite heavier flow in the PDS space

USD/MYR: The ringgit closed little changed from the day before at around 4.705

Macro News

Eurozone: Eurozone’s unemployment rate reached a new low of 6.4%, down from 6.5% in the previous five months and below the expected 6.5%. Selling price expectations increased in industry, construction, and among consumers, but declined in services and stayed stable in retail trade. Economic sentiment indicator rose to 96 points, highest in four months, while the consumer confidence rose slightly lower than market expectations by 0.4 points. This is partially driven by slowing inflation and expectations of incoming rate cuts by the ECB.

United States: The 2nd estimate report showed that US economy grew by 1.3% q/q in 1Q2024, down from 1.6% in the advance estimate and 3.4% in 4Q2023, mainly due to a downward revision in consumer spending as it softened more than expected by 2%. Exports and imports rose by 1.2% and 7.7% respectively. During the same quarter, Core PCE prices increased marginally by 3.6% q/q, slower than advance estimates of 3.7% q/q.

Fixed Income

Global bonds: The German Bund market posted gains across the curve as the eurozone economy recorded new unemployment rate low of 6.4% in April. Further, the sentiment was slightly supported after ECB Governing Council Villeroy stated there are possibilities for rate cuts to happen in both June and July 2024. At the same time, Gilts also rallied as traders deemed levels on Wednesday as overdone. The bullish trend continued in the UST market as we saw more gains were raked in the belly part of the curve. This is taking cue from the lower revisions to the US 1Q2024 GDP and its prices index components. By the end of the session, the 10Y UST fell 7 bps to 4.546%. But the gains were capped by cautious mode ahead of monthly PCE Price Index data later tonight.

MYR Government Bonds: The local bond market was little changed ahead of the US GDP and PCE data after-market hours yesterday, despite the surge in UST yields from the prior session. The benchmark 10Y MGS yield rose 0.4 bps to finish the day at 3.904%.

MYR Corporate Bonds: Mixed trades were seen in the PDS market yesterday amidst muted movement in the MGS/GII yields although flows were heavy at MYR903 million. Among notable trades were MYR110 million on 12/25 Danainfra (GG) done at 3.548%,MYR10 million on 09/26 Al-Dzahab Assets (AAA) done at 4.268%, and MYR20 million on perpetual 05/16 CIMB Group (A1) done at 3.915%.

Forex

United States: The dollar index struggled to maintain momentum and fell by 0.33% from a 2-week high, pressured by the lower revisions to GDP growth and quarterly Core PCE Price Index. Dollar weakened against yen and depreciated against the euro and the pound. Market participants will shift their focus to monthly PCE inflation figures tonight for a clearer inflation reading.

Europe: The EUR was supported amid the dip in the USD overnight and ended 0.3% firmer at 1.083. Eurozone data provided some impetus for the EUR. Eurozone's Business and Consumer Survey for May rose to 96.0 from 95.6 previous month and the unemployment rate fell to 6.4% in April from 6.5%. Eurozone CPI is due today with consensus expectation of +2.5% y/y in May (2.4% in April) and core CPI consensus of 2.7% (2.7% in April). Aside, GBP/USD found technical support after traders saw the pair moving above its 200D MA.

Asia-Pacific: USD strength during the Asian session yesterday pressured Asian currencies especially amid the market apprehension before Friday’s release of the US PCE inflation data. The PBoC set the midpoint rate for the USD/CNY at 7.1111, versus 7.1106 the day before and its weakest level since January provided less support while there was also no report of state banks buying CNY onshore on Thursday. Meanwhile, the JPY was also pressured despite some early gains on the back of safe haven demand ahead of US data prints. Early today saw the Tokyo CPI for May came in line with consensus expectation at 2.2% y/y versus a lower 1.8% in April. Core CPI was +1.9% y/y, also meeting expectation and above +1.6% the month before. These numbers add to expectations of more BoJ tightening where OIS is pricing 37.6% probability of a June rate hike currently versus 28.7% probability before the CPI release.

Malaysia: Yesterday, the ringgit closed little changed from the day before and today was seen hovering above the 4.700 level around 4.704 amid some cautious market sentiment ahead of US PCE and Tokyo CPI releases today.

Other Markets

Gold: Prices were supported as the dollar showed weakness overnight. Closing was USD2,343 per oz last night, or up 0.6%.

Crude oil: Prices rose as EIA latest report showed US crude inventories fell by 4.2 million barrels. Meanwhile, markets anticipate OPEC+ will finalise agreement this weekend to extend the current deal of 2 million barrels per day output cuts into 2H2024.

Source: AmInvest Research - 31 May 2024