Snapshot Summary…

Global FX: Healthy US PMI data forced investors to rethink higher-for-longer narrative and prompted dollar demand

Global Rates: Slight pressure on US Treasuries last Friday where yields moved up moderately

MYR Bonds: MYR bonds closed steady but yields moved within a narrow range after 30Y GII auction received firm bids

USD/MYR: The ringgit posted weaker performance on Friday and could extend to today following the stronger US data

Macro News

United States: The S&P Global US Composite PMI increased slightly to 54.6 in June from 54.5, marking the highest level since April 2022. The service sector saw the most notable improvement, with a PMI of 55.1, while manufacturing also contributed with a PMI of 51.7, albeit with slightly slower growth. This shows that a decrease in selling price inflation was observed as input costs rose at a slower pace, suggesting sluggish inflationary pressures.Japan: Japan's annual inflation rate rose to 2.8% from 2.5% in May, marking the highest level since February. This increase was driven by a significant surge in electricity prices to 14.7% from -1.1% as energy subsidies were fully phased out. The core inflation rate rose to 2.5%, slightly lower than market expectations of 2.6%. The Consumer Price Index (CPI) increased by 0.5% m/m, marking the largest increase since last October.Eurozone: The HCOB Eurozone Composite PMI dropped slightly below market expectations of 52.5 to 50.8 in June 2024 amid expanding private economic activity. The Eurozone Manufacturing PMI fell to 45.6, reaching a six-month low from 47.3 in May attributed by the decreases in new orders, exports orders and employment.

Fixed Income

Global bonds: There was slight pressure on US Treasuries on Friday where yields moved up moderately. Sentiment was driven by the flash S&P Global US Composite PMI Index up to 54.6 in June from 54.5 in May and which is also the highest level since April 2022. On the other hand, Bund yields declined as the market reacted to weaker Eurozone PMI numbers but UK yields rose as the UK manufacturing PMi and retail sales rose.

MYR Government Bonds: MYR bonds closed steady but yields moved within a narrow range and where a net buying interest was more notable after the strong 30Y GII auction. The 30Y GIl auction garnered a BTC of 2.504x with an average yield of 4.241%.

MYR Corporate Bonds: Against the backdrop of in range MGS trading on Friday, the ringgit PDS market closed mixed. But reflecting the need of investors to churn trading liquidity, we found more papers which are not usually traded names to appear insecondary trading. These include the likes of Tadau Energy 07/33 done at 4.68% and Kesturi 12/26 done at 4.20%. We also noted various banking papers being traded. These include perpetual Maybank 02/17 done at 3.99%, perpetual HLBB ‘11/17 done at 4.14% and CIMB ‘11/30 done at 3.84%.

Forex

United States: The dollar closed firmer on Friday as it rose 0.20% to 105.80. The dollar remained supported vis-a-vis other major currencies as the Fed is likely to stand firm with regards to rates policy during most of the incoming 3Q2024 whilst other major central banks are on course for rate cuts. The dollar was further strengthened by firm economic data on Friday including S&P Global US Manufacturing and Services PMI numbers for June, and slightly better than expected existing home sales figures.

Europe: The euro and pound were pressured amid the release of weaker PMI numbers. Nevertheless, the losses on pound were limited, aided by firmer UK retail sales. The BoE kept rates on hold last week, but some policymakers said the decision to cut or not to cut was "finely balanced" while also awaiting the 4 July UK election.

Asia-Pacific: The Japanese currency further depreciated and was seen above 159.5 level Friday and closing in nearer towards the 160.25 where the MoF stepped in to purchase the JPY in April and May. The JPY fall on Friday, by 0.5% to close at 159.80, was against the background of strong USD, and which also pressured the CNY lower. On Monday morning during Asia session, top currency official Masato Kanda warned that the government is ready to intervene in the FX market “24 hours a day” against the excessive weakening on yen.

Malaysia: The ringgit also fell alongside the decline in the yuan and amid the strong USD ahead of incoming US PMI data. For today, we may see the ringgit to trade towards the downside following the healthier US PMI data.

Other Markets

Gold: Gold price dropped 1.6% to USD2,322 after the healthier-than-expected US business data nudged investors to reconsider the ‘higher-for-longer’ narrative.

Crude oil: Oil price fell with Brent dipping 0.5% and WTI shedding 0.2% as the dollar rose and moving towards 106-level amidst positive data in the US.

Source: AmInvest Research - 24 Jun 2024