Snapshot Summary…

Global FX: DXY fell overnight after slower US inflation data release

Global Rates: Bonds rallied for the second day straight despite the hawkish FOMC tone

MYR Bonds: Rally mood in the local sovereign space was kept alive ahead of key US data after market hours

USD/MYR: The ringgit held its ground despite USD sustained above 105-level during Asia session

Macro News

United Kingdom: United Kingdom’s GDP saw 0% m/m growth in April 2024 after a 0.4% m/m rise in March. Components-wise, industrial and manufacturing production declined 0.4% y/y and 1.4% y/y, respectively. Its trade deficit widened significantly to £6.75 billion, a near two-year high, up from £1.10 billion in March. Imports increased by 7.2% to a near one-year high of £76.9 billion, while exports fell by 0.7% to £70.1 billion. Goods imports surged by 11%, largely due to a 14.7% rise from non-EU countries, driven by higher imports of refined oil from India, crude oil from the US, various manufactures from the US, and non-ferrous metals from South Africa.

United States: US consumer inflation fell 3.3% y/y in May 2024, while the core inflation rate hits 3.4% lower than previous month’s 3.6%. Lower gasoline prices and cheaper goods balanced out the rising costs of rental housing, but inflation is still likely too high for the Federal Reserve to consider cutting interest rates before September. The Federal Reserve maintained its GDP growth projections, expecting the economy to expand by 2.1% in 2024, and 2% in both 2025 and 2026. However, the Personal Consumption Expenditures (PCE) inflation forecast for 2024 was revised up to 2.6% from 2.4%. Core PCE inflation was also adjusted upward to 2.8% for 2024.

Fixed Income

Global bonds: By the end of US session, major bond markets posted gains on Wednesday, led by Gilts with yields dropping by double-digit bps. The JGB yields fell 2 – 4 bps while Bunds yields falling 6 to 9 bps across the curve. The positive sentiments also appeared in UST market with much of the gains seen larger in the belly part of the curve. Despite the updated FOMC June’s projections contain clear hawkish tone where PCE inflation projection was revised higher (by +0.2 percentage points in 2024 and +0.1 ppts in 2025) and the number of rate cuts in 2024 was revised to only one instead of four times in previous projections, it seems traders took more cue from the slower US inflation growth data. In fact, traders are pricing in two rate cuts this year with the first is expected to happen in September and later in December, according to the CME FedWatch tools, and thus explaining the overnight’s gains.

MYR Government Bonds: Support for MYR papers was kept alive as US treasury yields fell from the prior session. We noted healthy two way trading across the curve where profit takers switch into papers that they see value after realizing profits. This was before the closely watched US CPI and latest FOMC projection after market hours.

MYR Corporate Bonds: We noted the tone in the PDS space was tilted more towards bullish trades rather than bearish. Among notable trades were MYR20 million on 03/27 Danainfra Nasional done at 3.610%, MYR5 million on 01/34 TNB Western Energy (AAA) done at 4.199%, and MYR10 million on 01/29 Edra Energy (AA3) done at 3.777%

Forex

United States: The dollar gave up earlier gains and posted 0.6% daily losses by the end of the day after release of weaker US CPI which reflected traders’ view of a Fed rate cut in the coming months. While the latest FOMC projection came out and signalled only one rate cut this year and raising its core PCE inflation projection, traders were relatively unmoved by the hawkish signal and seek ex-dollar currencies.

Europe: The euro took advantage against weaker dollar overnight, driven by the downward inflation data in the US. Aside, the pound also rose against the weaker dollar. The pound was seen at 1.280 overnight, down 0.5%, and was showing a steady rise n the past two months from below 1.240 level ahead of anticipated BoE rate hold next week but expectations of a rate cut in 3Q2024.

Asia-Pacific: The USD/CNY showed mild to dip below 7.240 on the back of slightly weaker Chinese inflation data release but the CNY was still in range of recent monthly lows amid a firm USD during the Asian session yesterday. As we note USD level has moved down this morning post release of the US CPI and 30 SMAVG of the CNY is near the 7.235 level and 100 SMAVG at 7.216 then we anticipate some support near those technical levels today. JPY ended overnight slightly stronger after the lower US inflation growth.

Malaysia: The ringgit was little changed as it closed yesterday at 4.717 while the USD sustained above 105-level during Asia session. This morning, with DXY stumbling to around 104.7, we could see some flows into MYR, alongside with the 3Y MGS auction reopening being done today.

Other Markets

Gold: The precious metal sustained gains despite the release of lower US inflation data, but later found support as the Fed held interest rates while signaled rate cuts are coming in 2024-2025. Gold rose 0.3% to USD2,325 per oz and rebounding further from past one-month lows near USD2,295.

Crude oil: Prices of Brent and WTI each showed around 0.8% higher levels at overnight close. Lower US CPI influenced oil higher as well as tensions in the Middle East but was less affected by IEA lowering its 2024 demand forecast by 0.1 million bpd to 0.96 million.

Source: AmInvest Research - 13 Jun 2024