Snapshot Summary…

Global FX: The dollar sank as it was sold off against most of G10 and Asian currencies

Global Rates: The UST yield curve flattened while Gilts closed weaker

MYR Bonds: The buying momentum in the local bond space persists, with flows in the PDS space being healthy

USD/MYR: Continued support for the MYR was seen as it firmed at 0.3% yesterday

Macro News

United Kingdom: The annual inflation rate in the UK remained unchanged at 2% y/y in June 2024 and stayed at its lowest level since 2021. The primary factor contributing to this stability was the increased costs of restaurants and hotels, mainly driven by higher hotel prices, which rose by 6.2% y/y compared to 5.8% in the previous month. On the other hand, the clothing and footwear category saw a big slowdown in price growth at 1.6% y/y vs. 3.0% y/y the last month.

Australia: The Westpac-Melbourne Institute Leading Economic Index in Australia recorded a 0% change in June 2024, maintaining a subdued trend for the third month in a row. Although, the six-month annualised growth rate of the index improved to -0.1% in June from -0.3% in May, indicating sluggish growth.

United States: US industrial production increased by 0.6% m/m in June 2024, surpassing market expectations of a 0.3% rise. Manufacturing output, which accounts for 78% of total production, grew by 0.4% m/m, exceeding the market forecast of a 0.2% increase. Additionally, mining output saw a 0.3% m/m increase, while the output of utilities surged by 2.8% m/m. On another note, housing starts in the US increased by 3.0% m/m, marking a rebound from the revised 4.6% decline in the prior month. The rise in housing starts was primarily driven by a significant 22% surge in the construction of buildings with 5 units or more.

Fixed Income

Global bonds: German Bunds closed little changed after Eurozone’s inflation data showed the final figure was in line with preliminaries at 2.5% y/y in June and ahead of a policy meeting later today. Gilts were lower following still stubborn underlying UK price pressure. This translates into weaker sentiment in the UST market as the yield curve flattened with front-end 2Y yield gaining 2 bps to 4.438%, but yields at the belly and back-end of the curve were relatively unchanged as decent 20Y auction demand supported the tenors. The UST 20Y USD13 billion auction was awarded at 4.466% vs. 4.467% WI.

MYR Government Bonds: The buying momentum in local bond space carried on following soft US retail sales data coupled with the noise of the U.S. rate cut is getting louder. Meanwhile, the IRS was holding up at the previous day’s level, with 5Y IRS last traded at 3.555%, where we might see support building up around these levels for now. In addition, we will be having an auction to re-open MGS 04/39 this Friday, and we think the auction should be welcomed by both real money and foreign players.

MYR Corporate Bonds: Flows in the PDS space were healthy at MYR632 million as market players continue chasing high-quality papers. Among notable trades were MYR100 million on LPPSA 04/39, done at 4.008%, MYR50 million on Celcom Networks 08/24 (AAA), done at 3.507%, and MYR10 million Sinar Kamiri 01/28 (AA-), done at 4.919%.

Forex

United States: The dollar index dropped by 0.5% to 103.75, hitting a 3-3/4 month low as market players are pricing in the prospect for the dollar under Trump administration, where he expressed concerns about the dollar's recent strength impacting American competitiveness. These comments fueled speculation that he might pursue policies to lower the value of the dollar if elected president. The dollar was also sold off significantly against the Japanese yen amidst speculation of intervention.

Europe: The British pound rose on Wednesday as UK inflation rose slightly above expectations at 2.0% in June against forecasts of 1.9% but was flat against May 2.0% reading. However, core inflation was in line with expectations. Both the GBP and EUR were firm against the weaker USD. The EUR rose 0.4% to settle the day at 1.094.

Asia-Pacific: The CNY was firm yesterday, coming alongside the weak USD, but CNY sentiment was guarded as traders focused on the Premier Xi address at the Third Plenum. The event has no surprises, but policy announcements could be incoming. Prior to the market opening, the PBoC set the midpoint rate at 7.1318, or 1,312 pips firmer than Reuters' estimate. The JPY rose on Wednesday, and there is speculation that support was obtained from another intervention by the BoJ.

Malaysia: There was continued support for the MYR, riding on the upbeat expectations that the Fed will cut rates in the coming months. The USD/MYR pair was down 0.3% yesterday and closed at 4.664. There is also the upbeat expectation of a strong reading in the advance Malaysia’s 2Q2024 GDP estimates due this week, which we think aided the local currency.

Other Markets

Gold: Yesterday, there was some pressure on gold regarding suspected profit-taking activity after recent rallies. Overall, gold remains aided by upbeat expectations of Fed rate cuts.

Crude oil: The WTI rose amid the weak US dollar, and it got support from news that US oil inventories fell by 4.9 million barrels last week, as per EIA data. As per Reuters, the earlier estimate was for a decline of just 33k barrels.

Source: AmInvest Research - 18 Jul 2024