Snapshot Summary…

Global Rates: UST Treasuries were aided by mixed economic data, while other central banks show dovish slant, including the Bank of England

MYR Bonds: We should see month-end demand boosting MGS and GII this week

Global FX: Strong US economic data lend some late support for the DXY index

USD/MYR: Ringgit strengthened on the week, though it could lose its ground on US healthier-than-expected data

Fixed Income

Global Bonds: US Treasuries closed with small losses last week. The sentiment was driven by mixed US economic data. Also, as the BoE looks like its on its way to cutting rates earlier than the Fed, and with the ECB already reducing its rates at its latest meeting, UST yields were lifted off their three-month lows. In the UK, bond yields are near their two-month low after the BoE said its decision to hold rates was "finely balanced." The central bank maintained its bank rate at 5.25%, as largely expected.

Malaysia Government Bonds: Malaysian government bonds recorded small gains, with yields down slightly. Movements in the UST market generally drove the market, but there was also some support after another firm demand at a long-tenor government auction. The 30Y GIl auction garnered a BTC of 2.504x with an average yield of 4.241%.

Malaysian Government Bonds View: We should see month-end demand boosting MGS and GII this week. We have been watching for demand along the bellies of the curve since the pickup of shorter- and longer-tenor bonds in recent weeks (Exhibit 5). Malaysia's economic data this week is the May CPI. The consensus expectation is for a +1.9% y/y number versus +1.8% the prior month, which, if the actual number comes in line with expectation, traders will merely shrug aside the latest print.

Malaysian Corporate Bonds: Generally mixed movement in yields was noted along the PDS space last week, alongside the tight range trading in the govvies market. Banking papers continued to garner interest and select AA corporate issuers, which are not usually traded names.

Malaysian Corporate Bonds View: Traders may continue to exercise caution this week amid the tight credit spreads. Realignment along high- grade GG and AAA names may persist in the short term. In this regard, GG Danainfra may continue to see two-way flows with demand focused on 6-8 year maturities (Exhibit 2).

Forex

DXY Index: Excluding the slight weekly drop end-May, we saw that the DXY Index sustained its strength and posted five straight weeks of rally. This is given the expectation that the US Fed will keep its interest rates higher for longer. At the same time, other major central banks have started to show dovish signs or even cut their interest rates. While the Juneteenth holiday in the US managed to keep the dollar’s rally muted mid-week, it found further support on Friday after flash Composite PMI by S&P Global data showed private business activity expanded faster in the US and beating market expectations. This week, all eyes would be on the Fed’s preferred inflation measure, due on Friday. Consensus suggests the core PCE Price Index is expected to show a mere 0.1% m/m growth in May over the previous month. If the actual figure comes in exactly as expected or even lower, it could pave the path for the Fed to start cutting interest rates.

Europe: Following the prior week when the ECB trimmed its interest rates, we noted that the Swiss National Bank (SNB) followed the move. It cut its target LIBOR rate for the second time, running by 25 bps to 1.25% and pressing ahead of the curve in the global policy easing cycle. In the UK, the BoE kept its interest rates unchanged at a 16-year high of 5.25% through a 7-2 vote, which was in line with market expectations. The MPC members deemed the decision to be ‘finely balanced,' However, with headline inflation already converging towards the central bank’s target, the market foresees rate cut play is still on the table. That said, the standard currency euro and the British pound were pressured by firmer USD on departing the rate path outlook between the US Fed and other major central banks. Aside from the quiet data week this time, we are cautious about the political developments running up to the French lower parliament and the UK’s general elections for the upcoming weeks.

Asia: Most of the currencies in the region succumbed to dollar-seeking behaviour except for a few; the AUD and the THB managed to post decent gains on the week. The Australian dollar found some support after RBA policy meetings sounded hawkish last week. Due to the still high inflation and upside risks to inflation, RBA’s policymakers debated whether to increase its interest rate but decided to maintain it at a 12-year high of 4.35%. On the other hand, the Japanese yen fell 1.5% to a fresh 34-year low of 159.80, further raising the risks of intervention by authorities. Bloomberg newsflow also suggests there were options of 159 yen per dollar worth around USD2 billion expires during the week which also helped the spot yen to depreciate. The latest Japan’s faster headline inflation growth for May (+2.8% y/y vs. April 2.5% y/y) clashes with slightly underwhelming core inflation growth, painting a mixed outlook for the USD/JPY pair this week. Meanwhile, the CNY weakened by 0.1% w/w as the PBoC took a measured path in letting the yuan weaken amidst the strong dollar performance for the past few weeks.

Malaysia: The ringgit entered the week at sub-4.721-level before firming up by 0.2% w/w to 4.713 per dollar by the end of the week. Investors looked past the strong dollar demand and supported the ringgit against the dollar. We noted a recovery in Malaysia’s trade as exports rose 7.3% y/y in May, exceeding the market consensus of 2.3%. The trade surplus widened to MYR10.1 billion from MYR7.7 billion in the prior month. Traders remain on the lookout as Malaysia’s CPI data will be released on 25 June 2024.

Source: AmInvest Research - 25 Jun 2024