Snapshot Summary…

Global FX: Dollar rebounded on Monday, taking breath of relief from recent bearish run

Global Rates: Bund and Gilt yields declined but UST yields shot higher on the back- end of the curve

MYR Bonds: Local govvies space remained supported while flows in the PDS space were relatively decent

USD/MYR: Ringgit ended lower as the dollar rebound and yuan fell

Macro News

China: China’s economy expanded by 4.7% y/y, lower than the 5.0% target and the 5.3% growth in Q1. The growth is influenced by continuing property market slump, feeble domestic demand, a depreciating yuan, and continued trade tensions with Western countries. Notably, economic indicators for June revealed a general deceleration, with retail sales experiencing their weakest increase in nearly one and a half years as it recorded a 2% y/y growth in June 2024. Concurrently, the urban unemployment rate recorded a 0% change for the third consecutive month.

United States: the NY Empire State Manufacturing Index rose to -6 in June 2024 from -15.6 in the previous month. This indicates a modest decline in business activity within New York State.

Fixed Income

Global bonds: European bonds saw gains, with Bund yields drifting lower by 1 – 3 bps and Gilt yields posting a smaller drop on Monday, spurred by more Fed rate cut expectations by market players. But the bullish sentiment did not spill over into the UST market as the yield curve noticeably steepened with front-end 2Y yield steady at 4.458% while belly part 10Y rose 4.6 bps to 4.229% and back-end 30Y added 6.1 bps to 4.457%. The overall move was nudged by the increased odds that Republican candidate Donald Trump to win the presidential race following his assassination attempt, as well as Fed Chair Powell’s statement last night where he continued to decline to provide the exact timing of interest rate moves.

MYR Government Bonds: Overall, we saw some profit-taking activities from the local bond space yesterday following the UST yield spiking in the Asia Session opening after Trump’s assassination attempt over the weekend. However, support came in as market players continued to show healthy bids throughout the session. On the IRS front, we noted the overall levels drifted lower with 5Y IRS now tumbling below 3.585% (slightly below 3M KLIBOR of 3.59%) as the overall market sentiment in the bond space remained traded on a constructive tone.

MYR Corporate Bonds: Flows were decent in the PDS market at MYR370 million among rated papers amidst some weakening pressure in the govvies space, but sentiment continues to favour bullish trades. We saw some notable trades, including MYR60 million on PLUS 01/25 (AAA) done at 3.590%, MYR10 million on IJM Corp04/29 (AA3) done at 3.888%, and MYR10 million on AEON Credit 03/30 done at 4.055%.

Forex

United States: The dollar index rebounded by 0.12% to above 104.25 on Monday after dovish comments from Fed Chair Powell. Some pressures on the dollar were primarily influenced by stock market gains, which reduced the need for the dollar. On the other side of the equation, support for the dollar came the from elevated T-note yields and a rise in safe-haven demand following the recent assassination attempt on Donald Trump over the weekend.

Europe: The EUR fell as it was pressured by Monday’s recovery in the USD and backtracked from early day demand after data showed the Eurozone industrial production was -0.6% m/m in May. This was the biggest decline in the past four months but better than expected at -0.7% m/m.

Asia-Pacific: The JPY also fell as it lost to the USD rebound. The JPY had, earlier on Monday, appreciated on expectations that weakness in the yen would get authorities to intervene again to support the currency. Meanwhile, the CNY was negatively affected by mixed economic data consisting of 2Q GDP missing estimates and the contraction in the June retail sales figure. However, China’s industrial production in June was better than expected. Also, the PBoC kept its medium-term lending facility rate at 2.5%, as expected.

Malaysia: The MYR ended lower yesterday. Sentiment was affected by the support in the USD and the pressure in the CNY post-release of the China GDP, which fell short of expectations. The USD/MYR pair was seen at 4.674 at the close yesterday.

Other Markets

Gold: Gold edged higher overnight, supported expectations of Fed rate cuts, and Powell indicated downside to inflation.

Crude oil: Oil prices were pressured by China, which reported GDP data that was short of expectations. However, there were some supports for oil on wariness after the assassination attempt on Trump.

Source: AmInvest Research - 16 Jul 2024