Snapshot Summary…

Global FX: The dollar index rebounded to close above the 104-level

Global Rates: Major government bonds closed mixed with UST yields shifted higher by 3 – 4 bps

MYR Bonds: The local bond space was mixed yesterday as there were not much of fresh catalysts

USD/MYR: The local currency slipped slightly yesterday after its recent rally

Macro News

Malaysia: Malaysia’s imports leaped by 17.8% y/y, exceeding market expectation of 15.5%. It marked the fastest growth in five months, mainly driven by intermediate, capital and consumer goods. On the other hand, exports only grew by 1.7% y/y, much weaker than the previous month, attributed to reduced shipments to key trading partners like Singapore, China, Japan, and the EU countries.

Australia: Australia's unemployment rate rose to 4.1% in June 2024 slightly higher than previous month and current market expectation of 4.0%, with the number of unemployed individuals increasing to 608k. The participation rate increased to 66.9%, while underemployment fell to 6.5%.

Eurozone: European Central Bank (ECB) kept interest rates unchanged at 4.25%, citing that current data support their inflation outlook. Despite some temporary inflation increases in May, most indicators stabilized or decreased in June. The ECB maintains a restrictive monetary policy due to high domestic price pressures and services inflation. They aim to return inflation to 2.0% and will adjust rates based on evolving data and inflation trends, without committing to a fixed path.

Fixed Income

Global bonds: German Bunds closed mixed with gains seen on shorter tenors following ECB’s decision in keeping its key interest rate unchanged with muted future guidance while UK Gilts saw overall strength after mixed development in its labour market. The number of people getting employed rose 19k, beating market expectations of 18k, but wage growth has slowed to 5.7%. In the US, the Treasury yields erased early session’s fall to end the day higher by 3-4 bps across the tenors, we think due to continuous Trump trade - for Trump to win and impose inflation-flaring policies including tax cuts and tariff increases. The earlier fall on yields was caused by the higher than expected initial jobless claims (at 243k vs. prior 223k and cons. 230k) reported by the US Department of Labour.

MYR Government Bonds: Local bonds were traded mixed yesterday as there were not much of catalysts in place and investors looked past the slightly disappointing Malaysia external trade data. Meanwhile, we saw IRS level continued to drift lower along with 3M KLIBOR started to move 1 bps lower, thus drawing some attraction for bond-swap play at this juncture.

MYR Corporate Bonds: We noted heavier flows in the corporate space yesterday at MYR876 million amidst mixed movements in the govvies papers. Among notable trades were the MYR10 million on Prasarana 12/33 done at 3.858%, MYR20 million on 05/26 Putrajaya Holdings (AAA) done at 3.729%, and MYR20 million on MNRB Holdings (A1) done at 4.060%.

Forex

United States: The dollar index rebounded from recent falls to close above the 104- level amid higher T-note yields. Gains in the dollar accelerated after the euro fell when ECB President Lagarde said risks to the economic outlook are tilted to the downside.

Europe: The euro fell 0.4% as the ECB held rates and provided little signalling of its next move as the central bank said inflation may be above target next year. The pound fell further by 0.5% as data showed wages grew at a slower pace at 5.7% in the March to May period versus 6.0% in the three months up to April.

Asia-Pacific: The CNY was flat as traders await news from the leaders’ summit in Beijing. Meantime, the PBoC set the USDCNY fixing at 7.1285, which is the strongest level since the start of this month. Aside, the JPY weakened as levels reversed after recent rallies with lack of signs that BoJ was in the market to support the currency. Elsewhere, the AUD’s losses were limited on the back of Australia reporting net employment rose by about 50k in June against forecasts of about 25k while the unemployment rate edged higher to 4.1%.

Malaysia: The local currency slipped slightly yesterday after its recent rally. The market awaits the advance 2Q2024 GDP. We expect data to come in strong at 5.3% y/y, premised on improvements in the external sector, better distributive trade sales growth, robust labour market, and sustained low inflation in the quarter.

Other Markets

Gold: Gold fell slightly to remain near record highs amid sustained support from Fed rate cut outlook. However, signal of profit taking was there, alongside firm USD and higher UST yields, which led to the lower close overnight.

Crude oil: Prices were flat yesterday as we think markets continue to evaluate demand and supply outlook. On the demand side, worries over China demand remains while rise in continuing and new weekly jobless claims in the US also played on sentiment. On the supply side, we have next month OPEC+ ministerial meeting though that may not to result in any change the group's output policy,

Source: AmInvest Research - 19 Jul 2024