Snapshot Summary…

Global FX: The dollar index rose amid global IT outage-driven risk aversion

Global Rates: UST yield went up ahead of US GDP and PCE inflation data

MYR Bonds: Bullish market sentiment as the 15Y MGS traded around 3.95% area

USD/MYR: Ringgit declined as investors appeared to overlook Malaysia's stronger- than-expected 2Q2024 GDP data

Macro News

Malaysia: Malaysia’s GDP surged by 5.8% y/y in 2Q2024, exceeding our advance estimate of 5.3% growth. This growth represents the highest GDP expansion since 4Q2022, driven by growth across all sectors. It is mainly driven by unexpected robust growth from the construction sector, showing a significant increase of 17.2%. The service and manufacturing sectors notably accelerated, growing 5.6% and 4.7%, respectively. For the first half of the year, the economy expanded by 5.0%, outperforming the 4.1% growth in 1H2023. The strong results necessitate an upward revision to our current FY2024 of 4.5%.

Japan: Japan’s annual inflation rate recorded growth at 2.8% y/y in June 2024, the same as in the previous month. This stability was influenced by several key factors, including the persistent elevation of electricity prices and the first increase in gas prices in 13 months following the complete cessation of energy subsidies in May. The core inflation rate reached 2.6% in June, marking a three-month high and suggesting a potential interest rate hike by the central bank soon.

United Kingdom: The UK’s retail sales experienced a 1.2% m/m decline in June 2024, contradicting the 2.9% increase in the previous month. This downturn can be attributed to election uncertainty, adverse weather conditions, and reduced foot traffic. Non-food store sales dropped by 2.1%, particularly affecting department stores, clothing and footwear retailers, and furniture stores.

Fixed Income

Global bonds: UST yields rose last Friday as traders waited for more incoming data this week, which came ahead of the FOMC meeting near the end of this month. With recent Fed signalling and supportive economic data, especially signs of inflation coming down, CME Fed Watch shows markets pricing in a near 94% probability of a rate cut by September, compared with a month ago when the probability was much lower, near 60%. Data this week will include US GDP and PCE inflation and global PMI indicators. Biden dropping from the presidential race could mean some support for safe haven UST, in our opinion.

MYR Government Bonds: Last Friday, the market was focused on the 15Y MGS (MGS 04/39) auction, where the MYR3.0 billion tender (with MYR2.0 billion PP) garnered a strong BTC ratio of 3.10x with an average yield of 3.972%. Post-auction, the 15Y MGS was traded around the 3.95% area, demonstrating sanguine market sentiment. The Friday afternoon session was relatively quiet as players stayedcautious ahead of the weekend, while widespread IT disruption across the globe didn’t help trading activities.

MYR Corporate Bonds: Last Friday, there was a lack of interest in the Corporate Bond market, with a relatively lower number of papers seeing trades. Meanwhile, yields moved mixed. The flows were led by a couple of AEON Credit (AA3) papers, where its 09/28 tranche was dealt 1 bps lower to 3.90%, and the 12/28 paper was unmoved at 3.92%. Along the AAAs, flows were led by Tenaga 08/40, which fell 13 bps to 4.07%.

Forex

United States: The dollar index gained 0.2% to close at 104.40 following a worldwide IT outage that led to risk aversion in asset markets, prompting investors to seek the safety of the dollar. Additionally, higher UST yields on Friday contributed to the bullish sentiment surrounding the dollar. The dollar's gains gained momentum as the S&P 500 fell to a 2-1/2 week low, resulting in increased demand for liquidity and further strengthening the dollar. Just hours ago, President Joe Biden announced his exit from his presidential re-election bid, ending the race for the White House less than four months before Election Day. At the same time, he endorsed VP Kamala Harris to replace him as the nominee.

Europe: Both the EUR and GBP were on the downside amidst broad risk-off sentiments in the market. In addition, some gloomy data from the UK pressured the British pound, especially the larger drop in the UK’s retail sales. In the Eurozone, ECB’s Survey of Professional Forecasters suggests analysts are expecting inflation to stoop below 2.0% by 2026.

Asia-Pacific: The yuan weakened 0.1% after the Third Plenum failed to restore confidence in the Chinese economy. While there were conscious efforts among policymakers that the current slump is heavily affecting the economy, the ruling Communist Party concluded the key meeting as top leaders “pledged to make high- quality development”. The USD/JPY pair rose 0.1% to close below the 158 level. Higher growth in Japan’s core inflation suggests it is growing sustainably, in tandem with BoJ’s plan to roll back its ultra-accommodative policy. The commodity-linked AUD fell on the day as market players mainly bid for a dollar safe haven.

Malaysia: The ringgit opened at 4.667 per dollar early during the day but later reversed gains to fall 0.3% on the day and finished the week at 4.686. Investors seemed to look past the stronger-than-expected Malaysia’s 2Q2024 advance estimate GDP data by DOSM. The 5.8% y/y upside surprise means that the full-year 2024 growth could come in higher than our current forecast of 4.5%.

Other Markets

Gold: Gold prices fell 1.8% to US2,401/oz, moving away from the recent record high as some traders think the recent bullish run could be overdone.

Crude oil: Oil prices dropped on Friday, with Brent sinking 2.9%, and WTI shedding 3.2%, prompted by bearish sentiment across other commodities markets due to risk- off mode.

Source: AmInvest Research - 22 Jul 2024