Snapshot Summary…

Global FX: The DXY index retreated from the 106 level to follow the drop in Treasury yields

Global Rates: The UST curve posted decent gains, with yields shifting lower by 3-4 bps on mixed US data

MYR Bonds: Local bond were little changed ahead of key US inflation data later tonight and 5Y MGS auction next Monday

USD/MYR: The ringgit was weak against the dollar as the boost from Malaysia's CPI seemed to be temporary

Macro News

United States: According to the final estimate, the US economy expanded at an annualised rate of 1.4% in 1Q2024, marking the slowest growth since the contraction in the first half of 2022. Exports accelerated to 1.6%, faster than the previously estimated at 1.2%, while imports were revised downwards to 6.1% compared to the 7.7% initial estimate, contributing positively to the economic performance. Government spending was revised upwards to 1.8% from 1.3%, providing additional support for growth.

Eurozone: The economic sentiment indicator for the Euro Area declined marginally to 95.9 in June 2024, which was lower than market expectations of 96.2. This drop reflected a widespread deterioration in sentiment among companies, particularly among service providers. There was an uptick in selling price expectations in construction, services, retail trade, and among consumers, although expectations remained broadly stable in the industrial sector.

Malaysia: Malaysia's producer price index for May 2024 rose 1.4% y/y, a decrease from the previous month's 1.9%. While the increase was primarily driven by the water supply sector, which saw a rise of 8.7% y/y (April 2024: 7.2% y/y), followed by electricity & gas supply with a 1.5% increase (April 2024: 1.0% y/y), costs eased for mining at 6.6% y/y (April 2024: 10.0% y/y) and agriculture, forestry & fishing at 1.3% y/y (April 2024: 5.4% y/y). Meanwhile, Fitch Ratings reaffirmed Malaysia’s sovereign credit ratings at BBB+ with a “stable” outlook, which has remained so since July 2021.

Fixed Income

Global bonds: We saw the UST curve posted decent gains as yields across the tenors shifted lower by 3-4 bps throughout the session. This is driven by weekly continuing unemployment claims unexpectedly rising to a 2-1/2 year high, indicating weakness in the labour market. The development is seen as dovish for Federal Reserve policy, suggesting potential caution in tightening monetary measures. The weaker-than- expected US capital goods orders indicated softer economic activity and a weakening dollar.

MYR Government Bonds: Local bond space was changed a little with WI for 5Y MGS 08/29, which was taken at 3.650% ahead of auction next Monday, and we are waitingfor key risk being the US inflation data. Nevertheless, we saw that the local overall sovereign curve remained well supported thus far despite recent Fed members' elevated 10Y US Treasury yield on the back of a hawkish stance while awaiting key economic data.

MYR Corporate Bonds: We noted the volume in the corporate space remained decent at MYR579 million, and sentiments continue to be tilted towards buying interests. Among notable trades were MYR10 million on Sarawak Petchem 07/34 (AAA) done at 4.029%, MYR40 million on edotco Malaysia 09/32 (AA+) done at 4.009%, and MYR12 million on Malaysia Cement 12/29 (AA3) done at 4.138%.

Forex

United States: The dollar index shed 0.1% to 105.91, in tandem with the fall in UST yields. Market players are already seeing some weaknesses in the US economy through the release of mixed data and have bid for riskier assets. However, we think cautious mode remains ahead of key PCE inflation data later tonight, limiting the decline in the dollar.

Europe: The euro and pound found support as the dollar stayed above the 106 DXY level overnight. Some focus was on the EU leaders’ summit, where countries struck a security agreement with Ukraine and discussed plans for the bloc in the next five years, including on security and defence, after the bloc was deemed to have been ill-prepared in the face of the Russia-Ukraine war.

Asia-Pacific: The sustained weaker guidance by the PBoC as it set the CNY fixing continued to weigh on the Chinese currency. Firm USD yesterday during the Asian session ahead of Thursday’s data releases and before the PCE print today also weighed on the CNY. Prior to the market's opening, the PBoC set the midpoint rate at 7.127. The PBoC has set the fix lower for seven consecutive sessions. The AUD was supported yesterday, a day after the release of a higher-than-expected May CPI number at 4.0% y/y.

Malaysia: The ringgit was weak against the dollar yesterday as markets awaited more US data on Thursday and Friday. The boost from the Malaysia CPI this week proved temporary against the dollar moves, and we think BNM has no plans to shift the OPR this year.

Other Markets

Gold: Gold rose as markets sought stability before the PCE data release and after the print of weak US data.

Crude oil: Oil rose again with sentiment aided by the outlook for summer fuel demand and continued concerns over geopolitics.

Source: AmInvest Research - 28 Jun 2024