Snapshot Summary…

Global Rates: Repositioning saw US bonds fall despite weak economic data

MYR Bonds: Malaysian government bonds were supported despite the rise in global yields

Global FX: Traders sold x-USD G10 currencies on Fed, election risks

USD/MYR: Modest weakness in MYR last week to follow USD trend

Fixed Income

Global Bonds: US Treasuries weakened, and we think month-end and quarter-end positioning and profit taking activity were the main drivers, as these came amid the release of weak economic data and dovish comments from Fed officials. Meanwhile, we also think some element of fiscal risk was also recognized by traders as we heard the first presidential debate last week. Data last week include US core PCE price index which was up by 0.1% m/m in May 2024 (vs upward revised 0.3% in April), and the headline PCE at 0% m/m growth for the first time this year. Also, US GDP final estimate was at 1.4% in 1Q2024, the slowest growth since the contraction in the first half of 2022. Elsewhere, UK yields rose on firmer 1Q2024 UK GDP at 0.3% y/y versus 0.2% in prior quarter. We also think there’s concerns over fiscal risks as the UK election is held this week.

Malaysia Government Bonds: Malaysian government bonds continued to be supported with benchmark levels little changed, despite the rise in global yields. There was late pickup in shorter-dated MGS 25s up to 27s though there was also interest on longer MGS 11/33 and MGS 05/44. On the other hand, there was profit-taking activity upon release of CPI at 2.0% m/m in May versus 1.8% in April. IRS rates rose slightly, tracking higher global rates and reversing from recent dips.

Malaysian Government Bonds View: We expect firm MGS/GII auctions to continue in 2H2024, when we expect gross issuance to be smaller at MYR85.5 billion against MYR94.5 billion in 1H2024. We attribute the solid demand YTD to players eager to pick up and lock in higher yields (especially those of longer tenors).

Malaysian Corporate Bonds: Generally mixed performance in the PDS space last week. Limited movement in the MGS space, and yield realignment activity at the month-end, contributed to the sideways close.

Malaysian Corporate Bonds View: Past week realignment may continue. Some AAA curves such Air Selangor as may realign further, when compared with similar rated PASB (Exhibit 2).

Forex

DXY Index: The dollar index tailed the decline in UST yields throughout the week from a nearly two-month peak before rallying to its highest level in eight weeks on Thursday. It posted a 0.1% gain at the end of the week. Market participants sold off other G10 currencies due to Fed’s delayed plan to cut interest rates resulting in strong dollar demand. Although the PCE inflation data recorded a cooler 0.1% m/m growth, the University of Michigan consumer sentiment survey offset the decline during the session making the dollar monotonous at the end of the week. However, we are likely to see some volatility in the market due to upcoming release of JOLTs data, Non- Farm Payrolls, and Fed Powell speech. Market participants should remain cautious on the dollar due to the political uncertainties such as the French and UK elections and the ongoing US Presidential debate.

Europe: Amidst higher USD, elevated political uncertainties in the region in lieu of France’s and UK’s lower parliament elections and dovish expectations on most of central banks in the region vis-à-vis the US Fed, the EUR managed to hold its ground while the GBP finished the week relatively steady. This week, we posit that sentiment continues to tilt towards risk-off as last Friday’s mixed US inflation data did not translate into USD to be meaningfully weaker. Eurozone’s inflation data, due to be out on Tuesday, alongside the region’s set of PMI data should be of interest.

Asia: In Japan, the summary of opinions at the BoJ’s June policy meeting suggests some officials were in favour to raise interest rates to prevent the risk of overshooting inflation. Despite that, the currency weakened 0.7% w/w and touched fresh 34-year low of around 161.2-level as the market remain pessimistic against BoJ’s plan to raise its interest rate. However, last Friday’s higher Tokyo CPI figure seems to point towards sustainable inflation growth in Japan, and in turn, would pressure the central bank to act appropriately. In China, the PBoC continues fixing the daily yuan midpoint slowly weaker as a sign of willingness to let the CNY to fall but at measured pace. But on Monday during the Asian session, the yuan was largely stable after the Caixin PMI data showed further growth among manufacturers in China. Meanwhile, we noticed that the AUD posted decent gains of 0.4% on the week after May’s monthly Australia CPI grew faster at 4.0% y/y compared to prior month 3.6% y/y and market forecast of 3.8% y/y.

Malaysia: The ringgit remained modest throughout the whole week finishing at 4.718 on Friday, just around the opening of the week at sub 4.713-level. The monthly US new home sales worse-than-anticipated decline had weakened the hope of a strengthened ringgit midweek amid positive Malaysia CPI data. The awaited US PCE inflation data had little impact on the ringgit. Ringgit remain on the outlook ahead of the upcoming S&P Global Manufacturing PMI.

Source: AmInvest Research - 2 Jul 2024