Snapshot Summary…

Global FX: Dollar surged following stronger labour market data

Global Rates: Yields on UST advanced double-digit on Friday as market players pare back Fed rate cut hope

MYR Bonds: Friday trading session started subdued but ended the day well supported across the sovereign curve

USD/MYR: Ringgit held steady on Friday, with sentiment for the local currency supported

Macro News

China: China’s exports rose 7.6% y/y, more than market expectations of 6.0% in May 2024. They are mainly driven by improving outbound shipments and sustainable exports demand. Softer import demand that slightly increased by 1.8% resulted in a refined trade surplus of USD82.62 billion from USD65.66 billion in the same period a year earlier. China’s trade is expected to be turbulent due to the implementation of tariff policies from other countries.

United States: Growth in US non-farm payrolls (NFP) accelerated to 272k jobs in May 2024 compared to a downwardly revised 165k in the previous month, while the market expected the jobs to grow only by 185k. Employment rose in several industries, the highest being health care and professional scientific and technical services. However, the unemployment rate increased to 4.0%, and wage growth increased slightly by 0.1% and 4.1% in May 2024. Additionally, the labour force participation rate shed to 62.5% from 62.7%. The mixed data highlights the difficulty for the Feds in timing the rate cuts and resistive indications of a downturn in the economy.

Malaysia: After several months of hints, the government has finally lifted the subsidies for diesel where the new retail price for the fuel is now at RM3.35 from RM2.15 a litre starting midnight tonight. The new unsubsidised price for diesel is being reviewed weekly using the tried-and-tested Automatic Pricing Mechanism formula. We believe that impact on inflation resulting from the spike in new retail diesel price is minimal amid the widened targeted subsidy rollout via the Subsidised Diesel Control System (SKDS) 1.0 and 2.0. Phase 2 of subsidy rationalisation covering RON95 has yet to be unveiled.

Fixed Income

Global bonds: The hotter-than-expected US non-farm payroll and wage growth data sent major bonds to yield higher as the data dimmed the hope for early US interest rate cut. Both Bunds and Gilts were sold off as 10Y yields rose 7 bps and 9 bps to 2.620% and 4.262%, respectively, while the UST 10Y yields jumped 15 bps to close at 4.434%. Across the UST curve, yields shifted higher by 12 – 16 bps.

MYR Government Bonds: The Friday trading session started quietly until the market started seeing the just auctioned 20Y GII 08/43 get taken and start moving towards 4.12%. The sovereign curve ended the day well supported across the curve, wherethe belly part of the curve was marked 1 bps lower before the release of US NFP data aftermarket hours.

MYR Corporate Bonds: Ahead of the NFP data shocks, buying interests continue filling the market. However, we expect some traders to unwind their positions today as we start the week cautiously. Among notable trades, MYR30 million done on 02/29 Danainfra done at 3.696%, MYR10 million on 12/27 Pengurusan Air Selangor (AAA) done at 3.820%, and MYR10 million on 08/26 Sabah Development Bank (AA1) done at 4.226%.

Forex

United States: The dollar rallied on the back of the healthier-than-expected non-farm payrolls. US FFR futures pricing of a Fed rate cut by September this year fell to 41.0% probability from 61.0% before the NFP release. The past week saw USD in range amid the release of downbeat jobs data (Challenger report and ADP) and was only lifted with the NFP print. Nevertheless, the USD faces another week of major events, namely the June FOMC with new Fed macro projections on tap and the US CPI for May, which is also due for release.

Europe: After last week’s ECB cut, though the central bank raised the Eurozone’s growth and inflation projections, the EUR fell against the USD surge. Fed, looking like it could delay its first cut till after September, opens the opportunity for the ECB to delay its next cut, and we think traders took this as a hint and supported the EUR near the 108.0 level. On Friday, data included the Eurozone's 1Q2024 GDP at 0.3% q/q growth as expected (last 0.0%).

Asia-Pacific: During the Asian trading hours last Friday before the NFP release, the CNY was moderately weaker and found support around 7.247. The CNY was aided by China, which reported further growth in exports. On top of caution before the NFP release, news that Chinese battery makers, which have links to US automakers Ford, may face bans mooted by Republican lawmakers, also pressured the CNY. Meanwhile, the JPY fell versus the USD strength post-NFP, and the weak Japanese data pressured it. Japan's household spending fell by 1.2% m/m in April, and the April leading index dipped from 111.6 m to 111.7 m.

Malaysia: The ringgit movement was steady last Friday ahead of the NFP report, with sentiment for the local currency driven by the rangebound dollar and following rate cuts earlier last week by the ECB and Canada's central bank. However, resurgent USD is expected to pile pressure on MYR as we start this week. Last Friday, USD/MYR was down 0.1% and down 0.3% w/w at a close of 4.692.

Other Markets

Gold: Gold sank 3.5% last Friday to close at USD2,294 per oz as the metal's allure took a hit with the release of the strong US jobs data. News reports suggest that the PBoC should pause its gold purchases program, which was reportedly done in the past year and a half.

Crude oil: Brent and WTI both fell Friday, the former down 0.3% and the latter down by a slight 0.03% lower from Thursday's levels. The US jobs report reduced markets' expectations of a Fed cut, thus lowering oil prices.

Source: AmInvest Research - 10 Jun 2024