AmInvest Research Reports

Weekly Fixed Income & FX Research - Ended 7 Jun 2024

Publish date: Tue, 11 Jun 2024, 10:25 AM
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Snapshot Summary…

Global Rates: DM bond yields shot up post-release of the much better-than- expected May NFP

MYR Bonds: There was plenty of support for MGS and GII levels last week, though these came before the May NFP release

Global FX: USD rebounded following consensus-beating economic data

USD/MYR: MYR is on weak footing ahead of more major macroeconomic events this week, including FOMC

Fixed Income

Global Bonds: DM bond yields shot up post-release of the much better- than-expected May NFP, paring last week's gains, which had come on the back of expectations the NFP would generally come in line with ADP and Challenger jobs reports for May. However, the actual NFP print has brought WIRP pricing of a Fed cut in September down to 41.0% probability from 61.0% before the NFP release. Nevertheless, the UST faces another week of major events, namely the June FOMC with new Fed macro projections on tap, and the US CPI for May also due for release. Bund prices fell on the back of the NFP, though they remained mainly in the black w/w coming alongside the 'hawkish' ECB rate cut last week. The ECB’s 25bps cut was accompanied by policymakers raising their inflation outlook for 2024 and 2025, up from 2.3% and 2.0% to 2.5% and 2.2%, respectively. The central bank also signaled that further cuts might be slow in the coming months due to persistent price and wage pressures.

Malaysia Government Bonds: There was plenty of support for MGS and GII last week, though these came before the May NFP release. MGS yield levels were down 4-5 bps along benchmark papers on the front and belly of the curve, while the longer part of the curve was unchanged to a smaller 2 bps shift lower. Swap rates also fell, with levels down 2-5 bps. In the primary segment, the 20Y Gll auction was well received, where the BTC was 3.47x and at 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.

Malaysian Government Bonds View. We have started this week on the weaker bias, noticing the 10Y MGS quotes around 3.899/862% vis-a-vis last week's last dealt level of 3.86%. We caution that sentiment would remain pressured as WIRP has moved substantially, in our opinion, post-NFP. Still, we have major events, namely the US CPI on Tuesday and FOMC on Wednesday, to watch out for, which may or may not cement the current higher-for-longer rates outlook. Post jobs data UST yields surge, 10Y UST/MGS spread widened by 15 bps to 57 bps.

Malaysian Corporate Bonds: The PDS market saw a firmer bias to keep pace with gains in the govvies market. Flows were led mainly by AAA and AA1 higher grade names but soon followed by gains along other AA names.

Malaysian Corporate Bonds View: Amid a cautious sentiment, we foresee investors sticking to higher-grade GG and AAA papers such as GG Danainfra on the belly of the curve (Exhibit 2).


DXY Index: The dollar’s performance earlier last week was subdued, taking a cue from the disappointing ISM data. But on Friday, it rebounded following consensus-beating jobs data, which has sparked fears among market players that the US Fed may hold its interest rate as long as possible to ensure the inflation reaches the 2.0% target. While the unemployment rate peaked at 4.0%, its highest level since 2022, market players noted hotter- than-expected data, including higher nonfarm payroll and faster wage growth. According to the CME FedWatch tool, at the time of writing, the probability of September’s 25 bps rate cut has dropped to 44% from 55% before the data release. This week, we think the market will be cautious ahead of inflation data (consensus: 0.2% m/m vs April: 0.3% m/m) and the Fed meeting on Wednesday, where markets expect the key interest rate to be unchanged. Still, officials will remain hawkish in their stance.

Europe: Stronger US labour market data sent the EUR and GBP lower by Friday, erasing gains made earlier during the week. The euro reached its one-month low while the British pound retreated from the three-month high mark. The upward drive for the euro following the ‘hawkish ease’ move by the ECB on Thursday was pared, and the common currency closed Friday at 1.080, breaching our previous support level. The UK's lack of data drive (except from the healthy S&P PMI reading) had caused the GBP to lose its ground against the dollar. Plus, recent elections for the European Parliament could spark uncertainties in the market as the far-right wing has considerably gained seats across the region, which would negatively impact the euro. This morning, the EUR/USD pair dropped below the 1.080 mark during the Asia session.

Asia: Some Asia-Pacific currencies fell on Friday after the blowout in US labour market data but still managed to chalk up appreciation against the USD on a w/w basis. KRW, THB and JPY led those gains. On the other hand, the CNY fell 0.1% to end the week at 7.248 after the PBoC set its daily fixing rate to be weaker for the past few sessions. The AUD and NZD are also on the downside, pressured by the shattered risk-on appetite. Looking ahead in Asia, alongside the cautious mode, the market will focus on BoJ’s policy meeting. The central bank is expected to cut down its bond-buying program as a further move away from ultra-accommodative monetary policy.

Malaysia: With the w/w gains posted on some Asian currencies, the ringgit also recorded a second straight week of gains. However, we posit that the situation could turn around this week as global markets will be filled with risk-averse conditions and in anticipation of US inflation and the US Fed meeting. On the domestic front, April’s industrial production and retail sales figures would provide an early glimpse of how Malaysia's economy will fare in 2Q2024. This morning, the USD/MYR opened at 4.6883 before it surged to as high as 4.7203 per dollar.

Source: AmInvest Research - 11 Jun 2024

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