Snapshot Summary…

Global FX: The Dollar fell slightly, driven by weaker University of Michigan consumer sentiment index

Global Rates: UST gains were offset by growing US PPI

MYR Bonds: Local government bonds rallied amidst decent demand on the new 10Y benchmark GII 11/34

USD/MYR: Ringgit capitalise on weakening dollar

Macro News

China: China’s exports expanded by 8.6% y/y in June 2024, exceeding market expectations of 8.0%. This surge represented the most rapid increase in exports since March 2023, with manufacturers ramping up shipments ahead of expected tariffs from an expanding list of trade allies. In contrast, imports decreased by 2.3% y/y after a 1.8% increase in May 2024. It is mainly driven by softening domestic demand ahead of the Third Plenum gathering.

Malaysia: Malaysia’s IPI rose 2.4% y/y in May 2024, lower than the market expectation of a 3.5% gain. The rise was mainly propelled by the manufacturing sector, which saw a growth of 4.6% m/m and a 4.2% m/m expansion in electricity output.

United States: The University of Michigan consumer sentiment index for the US dropped for the fourth consecutive month to 66 in July 2024, lower than 68.2 in the previous month. Nearly half of consumers remain worried about high prices and ongoing economic uncertainty, especially with the looming presidential election.

Fixed Income

Global bonds: The UST market posted decent gains by the end of Friday as yields across the curve shifted lower by 2 - 6 bps, owing to the increased prospects for a US Fed rate cut due to the unexpected slump in consumer confidence. However, the gains were capped by faster growth in US producer inflation earlier during the session. The 2Y yield closed out at 4.451%, its lowest level in five months. This week, we may see elevated volatility in the financial market following the presidential candidate Donald Trump's assassination attempt over the weekend.

MYR Government Bonds: The local bond space rallied further on Friday following weaker-than-expected U.S. CPI for the second month that spurred hope that the Fed may cut the rate as early as September this year. Meanwhile, the new 10Y benchmark GII 11/34 auction was well received, with the final BTC standing at 2.422x as market players were hunting for yield pick-up. Post-trading for the latest benchmark was healthy, with the range traded at 3.820% - 3.830%.

MYR Corporate Bonds: Sentiment in the PDS space continues to be tilted towards bullish trades amidst a heavy trading volume of MYR855 million. Among notable trades were MYR10 million on 05/27 Danainfra Nasional done at 3.545%, MYR85 million on03/36 YTL Power (AA1) done at 4.145%, and MYR20 million on 02/28 AEON Credit Service done at 3.886%.

Forex

United States: The dollar fell slightly on Friday but was holding above one-month lows reached midweek. The release of a lower University of Michigan consumer sentiment index pressured the dollar, as it gained in the stock market, hampered dollar safe- haven demand. The release of weak CPI remained negative for the dollar, but Friday saw the release of stronger-than-expected PPI data.

Europe: The EUR rose last Friday while there was continued pressure on the USD. And while markets were more confident of the Fed executing more than 1 rate cut this year post last week’s release of the US CPI, doubts over ECB rate cuts at this month’s policy meeting meant support for the EUR. Meanwhile, the GBP also rose amid the dollar weakness, which was still helped by the earlier release of strong UK GDP data last week. USD/GBP is testing our resistance of 1.300, and bypassing that level, we will see the next resistance of 1.310.

Asia-Pacific: The JPY rose as sentiment was aided by speculation that BoJ had intervened for a second day to support its currency. On Friday, Japan’s currency diplomat, Masato Kanda, did not confirm whether authorities moved in the market. However, the official viewed speculative moves in the market had been one-sided recently. Meanwhile, the CNY weakened and was seen above the 7.27 level. Although exports jumped by more than 8% y/y in June, imports declined by 2.3% y/y vs a rise of 1.8% the month before and a consensus of +2.8%. Inflation was at 0.2% in June 2024 from 0.3% in May.

Malaysia: The fresh pressures on the dollar aided the ringgit last Friday. The post-US CPI data release and markets sustaining its view, the Fed will start reducing rates in September, sending the USDMYR down to 4.709.

Other Markets

Gold: Gold surged above 2,400 after an unexpected drop in US consumer prices, which strengthened the sooner possibility of Fed cuts.

Crude oil: Oil prices fell to a nine-year low after progress on a cease-fire between Israel and Hamas outweighed signs of rising US crude demand.

Source: AmInvest Research - 15 Jul 2024