Snapshot Summary…

Global FX: USD rebounded to offset weaker ISM Manufacturing PMI

Global Rates: Upside to long-term UST yield driven by US politics

MYR Bonds: Local bond yields reacted to last week’s 10Y UST weakness

USD/MYR: MYR outlook for today tilted towards the downside on global political risks

Macro News

China: The Caixin China General Manufacturing PMI recorded the eighth consecutive month of growth in factory activity, as the data marginally increased to 51.8 in June 2024 from 51.7 in May. It is mainly driven by output growth marking a two-year peak. Softer employment as the number of firms expanded their workforce roughly balanced as those reducing it.Eurozone: The HCOB Eurozone Manufacturing PMI was revised up to 45.8 in June 2024 from an initial estimate of 45.6 despite the contracting new orders, purchasing activity and employment. The outlook for output over the next 12 months remains positive.

United States: The ISM Manufacturing PMI unexpectedly contracted at a slightly faster pace, registering a reading of 48.5, which was 0.6 points below the consensus forecast. Demand continues to be subdued as companies show reluctance to invest in capital and inventory due to current monetary policy.

Fixed Income

Global bonds: Short tenor US Treasury yields were in a narrow range yesterday. The limited movement coincided with release of weak data including the June ISM manufacturing index falling to 48.5 from 48.7 when instead, the consensus expectation was for a rise to 49.2. But the longer tenor yields shifted higher as, we think, traders digested the possibilities of presidential candidate Donald Trump to win the election on November. There are more pertinent data awaited rest of the week including job openings figures for May, ADP’s private payrolls and the June non-farm payrolls. Meanwhile, bonds in Europe were volatile with Bund yields up 11 bps as sentiment was perturbed by ongoing political risks. Also, the Eurozone manufacturing PMI beat expectations at 46.8 in June versus 45.6 consensus and 45.6 in May.

MYR Government Bonds: As we entered the first trading day of the new month, we saw local bond yields higher by 1-3 bps across the curve after the 10Y UST spiked more than 10bps last Friday amid month-end portfolio rebalancing and fresh fiscal concerns on possibility Trump again winning the presidency. Meanwhile, local IRS was moving higher with the 5Y IRS traded at 3.660 (+3.5bps) and 10Y IRS traded at 3.890 (+5.5bps). In the primary space, the auction of the 5Y MGS (MGS 08/29) was well received with final BTC above 2x despite initial muted interest with WI given at 3.670% earlier in the morning. Meanwhile, post-auction trading was seen slightly bearish amid two-way flows.

MYR Corporate Bonds: Ringgit PDS were on the weaker side yesterday. Mostly, we think traders were taking a breather after hints of portfolio rebalancing in past couple of weeks ahead of the month- and quarter-end period. In any case, there were pickup in select papers, led by AAA and AA1 papers nearer the front of the curve, where AAA rated PLUS 01/26 fell 4 bps to end up at 3.72% and CTX 08/24 (AAA) shed 6 bps to end at 4.66%. As for AA1 papers, these were led by 10nc05 Public Bank 10/29 which fell 3 bps to 3.70%.

Forex

United States: The dollar index was initially lower after the release of a weaker-than- expected ISM Manufacturing PMI, which indicated a third consecutive month of declining factory output. However, the dollar rebounded to 105.90 as the long-term UST yields went up. We think that investors were adjusting their bets for the upcoming US presidential election after last week's debate seemingly increased the chances of a Trump victory. This week, traders are also anticipating several key indicators to gauge economic performance and the monetary policy outlook, including the jobs report, JOLTS, and the ISM Services PMI, along with the FOMC minutes.

Europe: The EUR held its ground and climbed 0.3% to finish the day around 1.074 level after historic win by the French Marine Le Pen’s far-right National Rally party, sweeping through the national assembly in the first round of lower parliamentary election. The second round of the election will be held on Sunday 7 July 2024. The election was called by the running President Macron after his party lost to the far-right gains in the European Parliamentary. Considering the overwhelming momentum the National Party has currently, President Macron will have an awkward partnership with a prime minister from the opposition party if the National Party turns out to win in the second round of elections. On the monetary policy front, the euro found some support after ECB President Lagarde said that officials are not in a rush to cut rates further, putting the rates outlook for the region clouded with uncertainties yet again.

Asia-Pacific: The USD/JPY pair crept higher to a new 38-year peak of 161.73 as the UST yields on longer tenors shot higher and the unwillingness for the BoJ to raise its interest rates quickly. At the same time, traders are on alert as intervention risks by Japanese authorities heightened. In China, the yuan was 0.02% lower against the dollar and currently trading around its weakest level since last November. Higher growth among manufacturers according to the private PMI survey might have helped the CNY limit its losses.

Malaysia: The USD/MYR closed Monday at 4.714, down by 0.1% as the ringgit continue to trade rangebound and reacting to the slowing US PCE inflation data released last Friday. However, the ringgit outlook for today seemed to be tilted towards the downside following the political developments in the global stage.

Other Markets

Gold: Gold gained 0.2% to USD2,332/oz as political uncertainties propped the demand for the bullion.

Crude oil: Oil started July with further gains as Brent climbed 0.2% and WTI rose 2.3%, driven by Middle-East geopolitics, strong demand outlook and weather concerns in the Atlantic Ocean.

Source: AmInvest Research - 2 Jul 2024