Snapshot Summary…

Global FX: DXY index trimmed down amid mixed US economic data

Global Rates: UST yields were driven higher amid the mixed data but especially looking at the rise in the University of Michigan consumer sentiment index

MYR Bonds: Shorter tenor bonds supported the local bond market as we prepare for the 5Y MGS reopening

USD/MYR: The ringgit reacted modestly to the awaited PCE inflation data

Macro News

Japan: Japan's unemployment rate recorded in May 2024 was in line with market expectations of 2.6%, and similar to the April level. The number of unemployed individuals decreased by 10k to 1.82 million, while employment increased by 10k to 67.61 million. Japan's industrial production experienced a notable recovery, increasing by 2.8% m/m following a significant decline of 0.9% in the previous month. The primary driver of this growth was the production of motor vehicles, which saw a substantial increase of 18.1% m/m.

United Kingdom: UK's first quarter GDP recorded a 0.3% y/y growth. The services sector rebounded from a 0.2% decline in 4Q2023 to a 0.4% increase in 1Q2024. Production increased by 0.3% y/y, slightly below market expectations of 0.5%. The GDP in the UK expanded by 0.7% m/m, indicating a recovery in economic growth.

United States: US core PCE price index increased by 0.1% m/m in May 2024, while the headline PCE price index recorded 0% m/m growth for the first time this year. US personal income increased by 0.5% m/m, showing an acceleration from a 0.3% rise in the prior month. Employee compensation increased by 0.6% m/m, fuelled by increases of 0.7% m/m in wages and salaries, and 0.4% m/m in supplements to wages and salaries. The data indicated a higher chance for Fed cuts in September.

Fixed Income

Global bonds: US Treasuries weakened on Friday upon the release of higher University of Michigan consumer sentiment index (68.2 in June from 65.6 prior month). This was in opposite reaction to the cooler PCE price inflation data as well as safe haven demand on the heels of election risks in Europe as well as after the US presidential debate which showed underperformance by sitting President Biden. UK Gilt yields rose upon the firm 1Q2024 GDP number. We also think there’s concerns over rising fiscal spending going forward as the UK election is held this week.

MYR Government Bonds: The local bond market remained supported with trading interest slanted along shorter duration bonds such as MGS 2025-2027 amid the already flat sovereign curve though we did note net buying interest on longer tenor MGS 11/33 and MGS 05/44. Meanwhile, there was curve rebalancing ahead of the month end. The market could be supported this week arising from the US PCE data reaction, but there will be caution ahead of the UK and French elections, while Japan’s Tankan manufacturing report this morning was above consensus. Today we have reopening auction 5Y MGS (MGS 08/29) at MYR5.0 billion with no PP.

MYR Corporate Bonds: There was mixed performance in the PDS market on the last day of June. Despite some yield realignment in the MGS space ahead of the month and half-year end, we noted some, but limited realignment the PDS space last Friday. Notable trades in this context include Air Selangor 07/37 traded 2 bps lower to 4.06% and Air Selangor 10/38 unchanged at 4.08%.

Forex

United States: The dollar initially fell after data showed flat reading in PCE inflation but later turned around to end Friday relatively unchanged after the University of Michigan consumer sentiment survey was revised higher, suggesting consumers sentiment is not that much worse. The dollar also found support from cautious remarks by San Francisco Fed President Mary Daly, saying May’s PCE data shows that inflation is gradually cooling but that there is more work to do.

Europe: The euro was up slightly by 0.1% amidst marginal dollar weakness. On the other hand, the GBP was unchanged at 1.265 despite the final UK GDP data for 1Q2024 was revised higher to 0.3% y/y from initial estimate of 0.2% y/y. We think that the political uncertainties in the region remain high as investors are on the lookout for any development running up to the French and UK’s election.

Asia-Pacific: As the JPY weakened past fresh 34-year low, traders are on the lookout for new intervention risks by Japanese authorities. On Friday, the Japanese government appointed Atsushi Mimura as new top foreign exchange diplomat and the current running Masato Kanda, as a move to prevent the yen to go weaker. In China, the yuan closed firmer although remained near its weakest level since last November. We think the CNY is vulnerable to the downside moving forward following the underperformance of President Biden during recent presidential debate, and prompted increased bets for ex-President Trump to win, who is known to have implemented significant trade barriers measures on China.

Malaysia: The MYR finished Friday at 4.718, the same level during the prior session as traders were cautious ahead of the PCE inflation data. However, we noted that some Asian currencies managed to post some gains on the day as the dollar weakened during the Asia session.

Other Markets

Gold: Gold responded modestly to the softer US core PCE index bolstering the expectations of Fed cuts.

Crude oil: Oil wavered due to China’s economic outlook and geopolitical tensions in Europe and the Middle East.

Source: AmInvest Research - 1 Jul 2024