Snapshot Summary…

Global FX: Dollar falls against its G10 peers ahead of NFP data later tonight

Global Rates: US Treasuries posted mild gains after data released overnight, including a rise in weekly jobless claims

MYR Bonds: The MYR government bonds remained on the upside, with the 20Y GII auction well-received

USD/MYR: Ringgit gained on Thursday amidst mostly stronger Asian currencies

Macro News

Eurozone: The European Central Bank announced a 25bps cut in its interest rate to 3.75% and raised its inflation outlook for 2024 and 2025, up from 2.3% and 2.0% to 2.5% and 2.2%, respectively. The central bank also signalled that further cuts may be slow in coming months due to persistent price and wage pressures. The Governing Council found it fitting to adjust the extent of monetary policy restriction following nine months of maintaining steady rates. In addition, the GDP growth for 2024 was revised higher to 0.9% from 0.6% in March’s projections.

United States: US exports increased by 0.8% from the previous month in April 2024 due to demand for pharmaceutical preparations, electric apparatus, and semiconductors. Imports leapt by 8.7% to USD338.2 billion, primarily driven by passenger cars, computer accessories, telecommunication equipment and crude oil. This resulted in a widened trade deficit of USD74.6 billion in April 2024. The number of people claiming unemployment benefits rose more than the market expectation of 220k to 229k, evidence of a weakening US labour market.

Fixed Income

Global bonds: The ECB’s rate cut was done overnight, but strong forward guidance left analysts wanting more, given the sticky inflation situation. US Treasuries posted mild gains as the US data release overnight included a rise in weekly jobless claims. This comes ahead of the nonfarm payrolls for May, which are set for release today. In any case, even as the ECB did not give a clear view of the future direction of policy, officials did warn of persistent inflation, which led to losses in Bunds where the bellies of the curve moved 5 bps higher overnight.

MYR Government Bonds: Yesterday’s 20Y Gll auction was well received, where the bid-to-cover ratio was 3.47x with an average yield of 4.133%. The firm demand extended the recent streak of good reception for longer tenor MGS and GII auctions, given players looking to secure attractive yield levels. However, post-auction trading in the secondary market was cautious as global markets waited for the US jobs data Friday and the overnight ECB meeting.

MYR Corporate Bonds: Corporate bonds saw another day of gains but where flows were led by select AAA and AA names which were not the usual liquid names. These include 06/27 Johor Corp (AAA) at 3.97% (-4 bps) and 07/30 Sarawak Petchem (AAA) at 3.90% (-13 bps). There was also 02/25 PKNS (AA3) traded 3 bps lower to close at 3.93%.

Forex

United States: The dollar was sold off against its G10 peers as the DXY index fell 0.2%, ending the day near 104.1 as traders positioned ahead of nonfarm payroll data later tonight. The dollar was also pressured after the initial jobless claims showed further signs of a softening of the labour market, coupled with the gains in the euro as the market took a cue from the ECB’s policy meeting.

Europe: The euro gained 0.2% against lower USD following the ECB’s decision to cut key interest rates by 25 bps. The central bank also foresees the inflation rate in 2024 and 2025 to be elevated, hinting that the upcoming rate cuts could be limited, thus supporting the EUR. Meanwhile, the GBP was held steady at 1.279.

Asia-Pacific: The yuan closed the session at 7.245 after the PBoC set its midpoint daily yuan fixing at 7.1108 vs. the prior day’s 7.1097, marking the weakest fix since 30 May. The JPY pared its early gains after dovish comments from BoJ Board Member Nakamura, who noted that raising interest rates is still too early. In the meantime, BoJ Governor Ueda said the central bank should reduce bond buying as it exits the ultra- accommodative policy, bolstering market expectations for such a decision to be made during next week's policy meeting.

Malaysia: Ringgit gained on Thursday amidst mostly stronger Asian currencies, marking the third straight day of the bullish trend. The ringgit was opened at 4.699 and traded between 4.692 and 4.703. Gains in the currency could extend further today as the sentiment seems to favour riskier assets/currencies.

Other Markets

Gold: Gold advanced as traders took advantage of the market players' positioning ahead of Friday's payroll data. The gold price rose 0.9% to USD2,376/oz.

Crude oil: Oil prices gained and marked the second straight session of higher trades, rebounding from the four-month low it touched recently on the back of OPEC will increase some supplies later this year. Brent rose 1.9%, while WTI gained 2.0%.

Source: AmInvest Research - 7 Jun 2024