Snapshot Summary…

Global FX: Dollar dropped further for the third straight session

Global Rates: Treasuries rallied on Monday on the back of soft data

MYR Bonds: The onshore government bond market was little changed last Friday

USD/MYR: The ringgit was unchanged on Monday but closed weaker on Friday

Macro News

United Kingdom: The UK Manufacturing PMI increased to 51.2 in May from 49.1 in April, its highest level since July 2022, but slightly below the flash estimate of 51.3. Manufacturing output has grown the fastest since April 2022, driven by increased new work, stronger market conditions, and efforts to fulfil existing contracts. New business rose for the second time in three months, hitting the highest level since April 2022, although new export orders declined for the twenty-eighth consecutive month. Looking forward, positive sentiment among manufacturers reached its highest since early 2022, with 63% of companies expecting output to grow in the coming year.

United States: The US’s core PCE price index increased by 0.2 m/m, down from a 0.3% m/m rise in March and below market expectations of 0.3%. The headline PCE also rose by 0.3% m/m, consistent with March and February. Annual PCE inflation growth stayed at 2.7% y/y, matching the four-month high from March, while the core rate remained at 2.8% y/y, the lowest since March 2021. Both personal income and spending increased by 0.3% m/m and 0.2% m/m, respectively.

Fixed Income

Global bonds: Treasuries rallied on Monday on the back of soft data. The May US ISM Manufacturing Index was printed lower at 48.7 in May (consensus 49.6%) and down from 49.2 in April. This was despite the S&P Global US Manufacturing PMI at 51.3 in the final reading for May, from flash readings of 50.9 and 50.0 in April. The drop in crude oil prices also provides support for Treasuries. Due to the US data and ahead of the expected ECB rate cut this week, Bunds also strengthened as Bunds yields fell around 7 bps.

MYR Government Bonds: The onshore government bond market was little changed last Friday after the prior day’s release of bond-friendly data from the US, including a trend lower in personal consumption and q/q GDP. The local market was closed on Monday due to YDPA’s birthday holiday.

MYR Corporate Bonds: Corporate bonds performed mixed on relatively light volume as sentiment was cautious ahead of global data releases, and global rates remained elevated. Nevertheless, various AAA and AA names saw net buying interest, reflecting that overall risk appetite remained healthy. Leading the flows last Friday include 04/38 Air Selangor (AAA), which rose 2 bps to 4.15% on MYR70 million volume, and 10/30 Bank Islam (A1), which fell 3 bps to close at 4.00% on MYR40 million volume.

Forex

United States: The dollar dropped 0.5% to a three-week low on Monday. It also marked the third straight day of decline following ISM manufacturing index data indicating a slowdown in the U.S. economy, with weaker-than-expected manufacturing and construction spending figures. This suggests the Federal Reserve may begin cutting interest rates this year, with an increasing probability of a September cut. The nonfarm payrolls report, JOLTS and ISM services PMI data due later this week will play a pivotal part in determining whether the recent dollar sell-off extends further.

Europe: Against the weaker USD, the EUR and GBP were supported. In addition, the May Manufacturing S&P Global PMI figure caused an upward drive, indicating improvements in the manufacturing sector in both the Eurozone and the UK compared to April’s figure. As a result, both currencies are currently hovering at their highest level since March 2024.

Asia-Pacific: Asian currencies mostly posted gains against the lower dollar. The JPY strengthened 0.8% to 156.08, although the market is still cautious about further yen weakening due to the gradual BoJ tightening process. We also saw the AUD was on front footing after data showed manufacturing PMI slightly increased to 49.7 in May from 49.6 in the prior month. The CNY was stable at 7.242. The PBoC set the daily yuan reference rate at 7.1086, which is just two pips stronger than Friday’s fixing. China’s Caixin Manufacturing PMI climbed to 51.7 from 51.4 in the prior month.

Malaysia: The ringgit was unchanged on Monday at 4.7067 but weakened from 4.7045 per dollar on Friday as investors were cautious ahead of US PCE Price Index data after market hours. For today, we may see the USD/MYR pair trend downward as a reaction to the soft US data.

Other Markets

Gold: Weak US manufacturing data sent gold prices higher. It rose 1.0% to USD2,351/oz.

Crude oil: Brent and WTI prices sank 4.0% and 3.6%, respectively, as OPEC+ and its members agreed to unwind a plan to cut 2.2 million barrels per day of production starting in October 2024 and extend the 3.6 million barrels per day cuts until the end of 2025.

Source: AmInvest Research - 4 Jun 2024