Snapshot Summary…

Global FX: Dollar rose on the back of healthy ISM Services PMI data

Global Rates: Treasuries added another day of gains as yields fell 4 – 5 bps

MYR Bonds: Sentiment in the MYR government bond market remained positive, in tandem with gains in the PDS space

USD/MYR: The ringgit firmed slightly on Wednesday but risk for today could turn to weakening side

Macro News

Australia: The Australian GDP rose by 1.1% y/y in Q1 2024, down from a revised 1.6% in the previous quarter and below market expectations of 1.2%. This was the slowest growth since 4Q2020 due to slower domestic demand, further fall in investment and faster growth in imports. In the meantime, the Judo Bank Australia Composite Output Index fell to 52.1 points in May from 53.0 points in April, according to final figures. The increase in output and new business led to higher employment in May. May also saw widespread increases in input prices, resulting in higher output price inflation. Sentiment in the private sector remained positive but eased slightly since April, with slightly lower confidence in the goods-producing sector.

United States: According to the ADP report, private businesses in the United States added 192k workers to their payrolls in April 2024, surpassing market expectations of a 175k increase and following a previous gain of 208k. Meanwhile, the ISM Services PMI rose to 53.8 in April 2024 from the first contraction since 2022 in the previous month. The healthy expansion was driven by higher business activity, faster new order growth and a rebound in new export orders.

Fixed Income

Global bonds: Treasuries added another day of gains as yields fell further, with players remaining driven by expectations of Fed rate cuts later this year. This was despite early losses on the back of expansion in the ISM Non-Manufacturing Index, increasing to 53.8% in May (consensus 50.7%) from 49.4% in April. Sentiment was encouraged ahead of the anticipated ECB rate cut this week while the Bank of Canada had cut its policy rate by 25 bps to 4.75%.

MYR Government Bonds: Sentiment in the MYR government bond market continued with a dip in UST yields. Net buying activity was seen across the MGS curve as benchmark sovereign yields fell 1-2 bps. However, trading volume was concentrated on the belly part of the curve as there were hints of caution on longer tenors before the 20Y GIl auction. The 10Y MGS edged down 1 bps to close at 3.87%.

MYR Corporate Bonds: The PDS market saw a firmer bias yesterday with recent gains in the govvies market. Flows were led mainly by AAA and AA1 higher grade names, reflecting a chase towards some wide spreads after the recent govvies gains. AAA papers saw interest yesterday, including 01/28 PLUS at 3.89% and longer maturity on 06/47, with Tenaga at 4.25%. As for GG papers, 03/42 Prasarana was dealt at 4.12% (-4 bps), while 02/40 Prasarana was 4.06% (-3 bps).

Forex

United States: The dollar index rose by 0.2% to around 104.2, driven by strong ISM services index data. However, this induces a split view in the market over the possible number of rate cuts by the Fed, especially after softer JOLTs and ADP job market data. Demand for the dollar was also supported by dovish central banks from other notable economies, i.e., the Bank of Canada delivered its first rate cut in four years while the market expects the ECB to follow suit during today’s policy meeting.

Europe: The rebound in the dollar during the session sent the EUR lower, although it found some support from the still-healthy Eurozone’s Composite PMI. On the other hand, the GBP held its ground, posting marginal gains of 0.1% on the day.

Asia-Pacific: Asian currencies were mixed with the JPY, leading to losses against the USD and erasing the prior day’s session. The CNY weakened slightly by 0.1% despite a private survey showing an unexpected pickup in China’s services sector. On Tuesday, the yuan midpoint daily fixing was set at 7.1097 per dollar vs. 7.1083. Also, the AUD reacted negatively to Australia’s slower growth in 1Q2024.

Malaysia: Despite the mixed Asian currencies, the ringgit gained against the dollar and traded within a tighter range of 4.696 – 4.702. Following the US ISM Services PMI expansion overnight, the risk for ringgit today tilts towards the downside.

Other Markets

Gold: Prices continued to be supported while bond yields fell on the Fed rate cut outlook, even though global crude oil prices continued to slip. Gold was seen up 0.7% overnight to close at USD2,355 per oz.

Crude oil: Crude oil fell, but we noted a pickup in prices after intraday levels initially fell. Prices had dropped this week to their lowest levels since January. We noted some support after the OPEC+ plan to extend output cuts (3.6 million bpd) into 2025.

Source: AmInvest Research - 6 Jun 2024