Snapshot Summary…

Global FX: There was resistance for the DXY near 105.3 to coincide with news US producer prices fell in May

Global Rates: Post US PPI data, the UST market posted another day of rally

MYR Bonds: The 3Y MGS auction yesterday was seen as decent at BTC of 1.682x

USD/MYR: There was support for the ringgit yesterday post FOMC meeting

Macro News

United States: The final demand US Producer Price Index fell, at -0.2% m/m, in May, versus consensus of +0.1% and following the +0.5% rate in April. The final demand core PPI, less food and energy, was unchanged m/m versus consensus of +0.3% after +0.5% pace in April. On a y/y basis, the PPI rose at +2.2% in May but lower than the +2.3% in April, and the core index rose at +2.3% versus +2.5% in April.Eurozone: The Eurozone's April Industrial Production fell by 0.1% m/m versus expectation of +0.1% and prior month’s rate of +0.5%. On a y/y basis, industrial production fell by 3.0% y/y against consensus of a smaller decline of 1.9%; and prior rate of -1.2%.

Malaysia: News reports indicate the government sees the inflationary impact from the diesel subsidy rationalisation measure as contained with diesel having a small 0.2% weight in the CPI basket. Finance Ministry Treasury Secretary-General Datuk Johan Mahmood Merican said diesel price was raised from MYR2.15 to MYR3.35 per litre but the government also allows logistic vehicles to continue buying at MYR2.15 per litre. Reports indicated the government could save MYR4 billion per annum from the diesel subsidy rationalisation measure.

Fixed Income

Global bonds: We saw the UST market posted another day of rally on continued positive sentiment as the market was driven by the unexpected drop in producer inflation, coupled with firm demand at the 30Y UST USD22 billion auction. These sent UST yields lower as the 10Y fell 7 bps to 3.86%, the lowest level since April. Elsewhere, the Gilts and Bunds also made gains, taking cue from the spilled over positive sentiment from the UST gains.

MYR Government Bonds: The 3Y MGS auction yesterday was seen as decent at BTC of 1.682x with size at large MYR5.0 billion, amid some late demand, and the range for awarded levels were wide given the overnight rally in the US Treasury market. Yields across the MGS curve moved lower marginally although the decline on UST yields was by more than 14 bps.

MYR Corporate Bonds: Flows in the ringgit PDS space was mixed yesterday despite the broadly supported govvies curve. Among notable trades seen yesterday were MYR20 million on 07/45 Prasarana done at 4.195%, MYR30 million on 11/26 UMW Holdings (AA+) done at 3.836%, and MYR100 million on 08/27 BGSM Management (AA3) done at 3.998%.

Forex

United States: The dollar index rose 0.5% to 105.20, rebounding from 0.5% loss the day before after the Fed forecasted only one rate cut this year. However, there was resistance near 105.3 to coincide with news US producer prices fell in May.

Europe: The EUR was in negative bias late yesterday amid political risks in Europe even as the USD was seen finding resistance near 105.3 in late trading. The pound was seen slightly lower at 1.276 overnight, down 0.3%, and continuing a trek lower in the past two months from below the 1.240 level. BoE rate is expected to hold rates next week but expectations are of a rate cut in 3Q2024.

Asia-Pacific: The CNY fell on reported onshore demand for USD, suspected by corporates to supply for, amongst others. as dividend payments overseas. The currency also backed down as Fed reduced its expectations for the number of rate cuts this year from two to one. The PBoC continued to set the fixing rate at stronger than market levels, in a sign that authorities intend to limit CNY weakness. The PBoC set the rate at 7.1122 whereas USD/CNY was hovering late yesterday above 7.250. The AUD fell 0.4% to close at 0.664. Australia reported its unemployment rate fell to 4.0% in May (consensus 4.0% vs prior month of 4.1%).

Malaysia: There was support for the ringgit yesterday amid a subdued US dollar post FOMC meeting and low US CPI when the dollar index was hovering below 105. The USD/MYR pair fell 0.2% yesterday and closed at 4.709.

Other Markets

Gold: Gold, which could be used as a hedge against inflation, fell after the hawkish Fed narrative but still anticipated interest rate cuts this year and next. The low CPI and PPI decline contributed to the pressure on gold.

Crude oil: Crude oil managed modest increases in prices as prospects of higher-for- longer interest rates dampened the demand outlook. The Energy Information Administration reported that US oil inventories rose by 3.7 million barrels last week, against consensus expectation of a decline.

Source: AmInvest Research - 14 Jun 2024