Snapshot Summary…

Global FX: The Dollar climbs in tandem with the higher yields on certain parts of the UST yield curve

Global Rates: The UST, as well as European yields, rose on Tuesday as traders digested the latest comments from Federal Reserve Chair Powell

MYR Bonds: Local govvies saw gains slanted towards the front to the belly part of the curve

USD/MYR: Ringgit managed to post slight advances, but cautious trading limits the gains

Macro News

Australia: Australia’s Westpac-Melbourne Institute Consumer Sentiment Index suggests subdued consumer confidence, falling 1.1% m/m to 82.7 in July 2024, the lowest in six months. It marked the fifth time of decline this year as fears of persistent inflationary pressure and higher borrowing costs counteract the benefits from tax cuts and other fiscal support measures. In contrast, Business Confidence by NAB surged to +4 from -2 in the prior month.

United States: The NFIB Small Business Optimism Index rose to 91.5 in June 2024, its highest this year and higher than the previous month’s 90.5, beating the market forecast of 89.5. Still, the current level is way below the 2021 peak of 102.5 as small businesses are still struggling with higher compensations and elevated input costs with uncertainties on the upcoming time horizon.

Fixed Income

Global bonds: UST and European yields rose on Tuesday as traders take note of the latest comments from Federal Reserve Chair Powell. According to Powell, the Fed is targeting to reduce interest rates, but policymakers also intend to see more data to see if inflation is steadily moving toward its 2% target. The BoJ surveyed Japan to gauge market participants' expectations for BoJ’s plan to taper its monthly government bond- buying activities. Some even suggest that the buying pace should be as low as one to two trillion yen per month compared to the current pledge of roughly six trillion yen per month. On another note, this week’s CPI and PPI data releases are eagerly awaited.

MYR Government Bonds: The local government bond market strengthened with gains slanted towards the front to the belly part of the curve. The market gains come before the BNM OPR decision on Thursday, with the expectation that they will stay at 3.00%. However, players will focus on the MPC statement, which could be a fresh driver for the local bond market, especially if BNM changes its growth and inflation outlook.

MYR Corporate Bonds: The ringgit corporate bond market was supported while the govvies space recorded gains. Various AAA and AA names led PDS gains. Flows were heaviest on short tenor ALR 10/24 (AAA) at 3.47% (-4 bps), MTT 08/26 (AA3) at 4.75% (-9 bps) and 01/30 (AAA) at 3.92% (-3 bps).

Forex

United States: The USD held its early session gains to follow the higher UST yields on longer tenors. After Fed Chair Jerome Powell, during Senate testimony, maintained an overall neutral stance on monetary policy. He said officials are wary of potential labour market risks, though they want to see inflation to cool further before reducing rates. He also said that the next move will not be a hike and declined to give any specific timing on rate cuts.

Europe: The EUR and GBP closed in red amidst the dollar stood its ground, quiet key data flow coming out from the region and political uncertainties in France. Hung parliament in France means no new Prime Minister has been nominated yet by President Emmanuel Macron, as the nomination could be tricky to finalise due to the need to negotiate with a coalition of parties. In the meantime, investors looked past hawkish rhetoric by BoE’s Jonathan Haskel, who said he would rather hold rates until “more certainty” that underlying inflation has eased substantially.

Asia-Pacific: The CNY fell as the PBoC set a weaker fixing, the first weak level after three days of firm fixings. The central bank set the rate at 7.1310 yesterday. The CNY also rose as China’s government bond yields rose, aided by the PBoC saying on Monday that it would start conducting temporary reverse repos, which the markets think the extra liquidity is targeted to lift bond yields. Meanwhile, the Japanese yen weakened by 0.3% amidst sentiments still disfavoured on the currency. The AUD was on the upside after data showed confidence among businesses rose to its highest since early 2023.

Malaysia: The USD/MYR pair opened at 4.708 and spiked to an intraday high of 4.714 before finishing at 4.707. Domestically, May’s unemployment rate data will be due later today, where the previous figure showed an unchanged rate of 3.3%. We think the figure could also come in steady due to further improvements in the labour market.

Other Markets

Gold: Gold found slight relief as it rebounded 0.2% to USD2,364/oz as market players digested the FFR outlook from Fed Chair Jerome Powell's testimony in front of the Senate last night.

Crude oil: Oil prices continue to fall as Brent fell 1.3% and WTI shed 1.1% amidst a wide price swing session. The lack of clarity on the future rate outlook left market players concerned about the possibility of interest rates being elevated for longer.

Source: AmInvest Research - 10 Jul 2024