AmInvest Research Reports

Fixed Income & FX Research - 12 Jun 2024

AmInvest
Publish date: Wed, 12 Jun 2024, 10:33 AM
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Snapshot Summary…

Global FX: The USD gained further and attributed to hints of safe haven demand ahead of US CPI and FOMC this week

Global Rates: Bonds strengthened, and we think there could have been some short- covering activity involved

MYR Bonds: The bond market was supported with interest heard on the belly part of the curve, while BNM announcing the 3Y MGS auction at MYR5 billion size was in line with expectations

USD/MYR: The ringgit found late support despite the steady dollar, and with USD/MYR levels still north of 4.710

Macro News

Australia: National Australia Bank’s Business Survey reading fell to 6 in May from 7 in the previous month, and its Business Confidence Index fell to -3 from 2 in the prior months. Business conditions eased further in May and were running below the long- run average as growth in sales and profits slowed, although the employment index rose after a tumble the month before.

Fixed Income

Global bonds: Bonds strengthened with a 10Y yield down 6 bps on the day to close overnight at 4.40%. We think there could have been some short-covering done overnight, coming ahead of the US CPI and FOMC mid-week, players hedging against downbeat inflation reading, and Fed policymakers still eyeing at least one rate cut this year.

MYR Government Bonds: The local government bond market was supported as we noted net buying interest continue to fill the belly part of the curve. Meanwhile, BNM announced the auction for the 3Y MGS for (MGS 05/27), which is at size of MYR5 billion. The tender closes tomorrow. The MYR 5 billion is in line with ours and market expectations. The 3Y MGS has been trading within the range of 3.35% to 3.65% in 2024 thus far, and with current levels near 3.55%, we should see the paper garnering enough demand at the auction.

MYR Corporate Bonds: In the PDS space, gainers outpaced losers in tandem with the supported sovereign space. Among notable trades were MYR20 million on 08/37 Prasarana Malaysia done at 4.018%, MYR10 million on 05/27 Cagamas MBS (AAA) done at 3.937%, and MYR15 million on 11/36 YTL Corporation (AA1) done at 4.239%.

Forex

United States: The USD gained further on Tuesday, attributed to hints of safe-haven demand ahead of US CPI and FOMC this week and political risks in Europe. However, US equities had strong gains amid tech stocks rally, especially Apple's share price. The consensus expectation for the US CPI in May is 3.4% y/y, the same print in April, and +0.1% m/m, smaller than the +0.3% in April.

Europe: The EUR remained pressured by recent political developments while still being affected by the strength of the USD after last week's NFP release. Sentiment for the EUR yesterday was less affected by expectations that the rates policy by the ECB would stay unchanged in the coming few meetings after the recent rate cuts. ECB President Lagarde echoed this expectation and said rates could be on hold for more than one meeting.

Asia-Pacific: Against continued USD strength, the Asian currencies continued to be subdued. Meanwhile, the CNY approached its seven-month low as onshore traders returned from the long weekend break, and the CNY was dampened along with regional currencies. However, backstopping the CNY move, it was reported that state- owned banks were selling USD in the onshore spot market. Aside from this, speculation remains that BoJ may this week announce the trimming of its JGB purchases program (currently about JPY6 trillion per month) whilst reducing its balance sheet size. USD/JPY was moderately higher yesterday.

Malaysia: The ringgit found late support despite the steady dollar, with USD/MYR levels still in the north of 4.710 yesterday. Ahead of the US CPI and FOMC meeting, the ringgit, though remaining pressured vis-a-vis the surging dollar, we note the USD/MYR are off monthly highs of 4.745.

Other Markets

Gold: Prices rose amid the nervous global financial markets. Gold could be pressured midweek as the Fed is anticipated to hold rates, and policymakers are anticipated to signal higher for longer rates.

Crude oil: Oil rose ahead of the Fed meeting. On Tuesday, markets showed some support from news OPEC is maintaining its 2024 demand forecast at a rise of 2.2 million barrels per day and by 1.9 million in 2025. OPEC said that even as demand in the first quarter fell, the 2H2024 demand will be aided by travel and tourism activities.

Source: AmInvest Research - 12 Jun 2024

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