Snapshot Summary…

Global FX: The Dollar backed down from highs amid some caution ahead of the CPI and FOMC meeting this week

Global Rates: There was a smaller rise in UST yields amid the cautious sentiment

MYR Bonds: Local bonds started off this week on weaker footing but we could foresee pickup on select medium tenor GG and AAA bonds instead in the short term period

USD/MYR: Not surprisingly the MYR fell together with other Asian currencies against the stronger USD

Macro News

Japan: Japan's economy contracted less than initially reported in 1Q2024. This was on the back of upward revisions to capital spending data and inventory levels. The Cabinet Office data showed Japan’s GDP contracted at a revised pace of 1.8% q/q annualised in 1Q2024. This is a smaller decline that economists' median projection of 1.9% contraction and the 2.0% decline in the preliminary estimates. The revised GDP comes ahead of this week’s BoJ meeting and speculation the central bank policymakers may discuss cuts to its JGB purchases.Eurozone: Eurozone's June Sentix Investor Confidence index improved to a reading of 0.3 from -3.6 in the previous month and against expectation of -1.5. The index on expectations was from 7.8 in May to 10.0 in June. Sentix said this provides, "some encouragement that the trend may continue in the coming weeks". Germany's measure saw an improvement in June, with the index on the current situation rising to -26.3 from -33.5 in May.

Malaysia: According to the Statistics Department, Malaysia’s Industrial Production Index accelerated to a +6.1% y/y pace in April, driven by higher output growth in the manufacturing sector. Prior month’s data was a smaller +2.4% y/y but the April number was below consensus expectation of 6.5%. Output in the manufacturing sector rose by 4.9%, while mining posted a strong growth of 10.0%, and the electricity sector remained steady at 7.6%. DOSM said manufacturing output was supported by production in export-oriented industries at +2.6% versus +0.5% in March 2024.

Fixed Income

Global bonds: The 10Y UST rose 3.3 bps to close the day at 4.467%, its highest level since late May. While the market has basically become cautious on the timing of the US Fed rate cut following the NFP data shock last Friday, we think two FFR cuts is priced in and unless there is another upside surprise which could threaten those outlooks running up to the conclusion of Fed meeting this Wednesday night, we think current yields level will be supported for the next few days. In Europe, the Bund curve bear-steepened after the European Parliament election results favoured the right wing political parties.

MYR Government Bonds: Local sovereign bond space started off Monday on weaker footing following the strong US labour market data last Friday. Yields across the MGS curve were lifted higher by around 1-2 bps by the end of the day. The curve was alsopressured higher by the diesel subsidy rationalization announcement by the government over the weekend, given the already flat sovereign curve. Nonetheless, the bearish sentiment yesterday was limited, in our view, as we noted some players dipped into the market for value.

MYR Corporate Bonds: In tandem with the bearish trades in the govvies space, traders offloaded some papers into the market, pushing yields higher. Among notable trades were MYR120 million on 10/26 Danainfra done at 3.579% (+8 bps), and MYR30 million on triple-A rated 08/37 Tenaga Nasional done at 4.058% (+2 bps). Amid the cautious sentiment, we foresee investors sticking to higher-grade GG and AAA papers such as GG Danainfra on the belly of the curve.

Forex

United States: The USD remained supported but backed down from highs. The DXY found its way near 105.3 but fell towards 105.2 in late trading. There was some caution ahead of the CPI and FOMC meeting this week. The safe-haven dollar also posted gains against the EUR amid political concerns in Europe.

Europe: The EUR was pressured after French President Emmanuel Macron called a snap national election, which was in reaction to gains by the far right in the European Parliament elections on Sunday. Pressure on the EUR was compounded by USD strength post NFP release. On the other hand, there was support for the EUR as policymaker Kazimir said there is no need to rush into another rate cut. Eurozone's Sentix Investor Confidence rose to 0.3 in June from -3.6 previously (consensus at-1.5) which additionally aided the EUR. The GBP was pressured but found technical support as levels continued to stretch below its 100d moving average.

Asia-Pacific: Asian currencies weakened versus USD strength yesterday but there was focus on the JPY which though it fell against the USD found support as Japan revised upwards its 1Q2024 GDP numbers. Aside, the AUD was firm but hovering near its weakest in a month just above the 0.660 level. The AUD remain pressured from last week’s data showing 1Q2024 growth at 0.1% versus 0.3% previous quarter and lower against consensus of 0.2%.

Malaysia: Not surprisingly the MYR fell together with other Asian currencies against the stronger USD after the large upside to the NFP data released last Friday. The USD/MYR closed 0.7% higher at 4.723. The April IPI missing estimates was largely ignored though we note that manufacturing output of export oriented industries was strong in April, which we think is MYR-positive.

Other Markets

Gold: Prices rose ahead of cautious global market sentiment before the FOMC. Gold was also lifted after reaching monthly lows during intraday trading.

Crude oil: Oil rose as sentiment was aided by expectations of summer demand outweighing the risks from demand growth in view of the delayed interest rate cuts.

Source: AmInvest Research - 11 Jun 2024