Snapshot Summary…

Global FX: Dollar declined amidst mixed US economic data

Global Rates: Heightened net selling pressure on longer UST maturities

MYR Bonds: Robust risk appetite for local bonds, with a preference for higher-quality issuers

USD/MYR: Ringgit strengthened marginally amid weaker-than-expected Malaysia’s inflation data

Macro News

Japan: The Au Jibun Bank Flash Japan Composite PMI rose to 52.6 in July 2024, up from the previous month's final figure of 49.7. The growth was mainly driven by a notable upturn in the service sector. It surged to 53.9 from 49.4 in the prior month, which experienced its strongest growth in three months, while manufacturing activity unexpectedly contracted to 49.2.

Malaysia: Malaysia’s yearly inflation rate held steady at 2.0% for the second consecutive month in June 2024, denoting the negligible impact from the spike in diesel price. Core inflation rose to 1.9% y/y in June 2024, while food and beverages inflation increased to 2.0% m/m. CPI increased by 0.2% m/m in June, following a more significant rise of 0.3% in May.

United States: S&P Global US Composite PMI climbed to 55.0 in July 2024, up from 54.8 in June, marking the highest level since April 2022. This indicates sustained growth over the past 18 months. The service sector continued outperforming manufacturing for the fourth consecutive month, with manufacturing output declining for the first time since January. Despite this overall growth, employment growth decelerated, business confidence dipped due to mounting political uncertainty, and competitive pressures kept price increases modest, even as input costs rose significantly.

Fixed Income

Global bonds: UST yields on shorter-tenor securities fell but moved yields higher on longer-dated papers as the market watched the release of the latest economic data. This included the Composite PMI Index which edged up to 55.0 in July while US exports rose. Net selling pressure on longer tenors was on caution as we continue to wait for the latest PCE monthly inflation data.

MYR Government Bonds: MYR government bonds continued to strengthen, and we note yields down by 1-2 bps across the curve. We also note the bond move was in tandem with the IRS moving lower by 3-5 bps, with the 5Y IRS trading below 3.500%. We note that the onshore support exceeded the expectation of a US rate cut by September, where US futures trading is priced at nearly 100% probability.

MYR Corporate Bonds: After the past week, when the local corporate bond market was finding interest, we noted yesterday that we saw more mixed trading. AAA papers, especially infra names, saw interest, but the AA segment showed weakness. Risk appetite still looked healthy, but interest was more in higher quality names. Flows were heavy on AAA Amanat Lebuhraya (ALR). ALR 10/34 shed 4 bps to 4.17%, and ALR 04/35 fell 5 bps to 4.23%.

Forex

United States: The dollar index fell 0.1% after data showed mixed development in the US economy, but still not so far away from the two-week high it reached yesterday. The Flash S&P Global PMI suggests that the manufacturing sector activity ended its six-month streak of growth and has turned to declining growth. On the other hand, the services sector experienced faster growth in July.

Europe: The euro was down 0.1%, but the British pound was steady at around 1.291. The region’s PMI data were also mixed, with broad improvements seen in the UK. At the same time, the manufacturing sector in the Eurozone was hit with more weaknesses overall and is being offset by the growing services sector with a PMI reading of 51.9. The diverging reports explain a more stable GBP on Wednesday.

Asia-Pacific: Asia’s currency was mainly stronger against the lower dollar. We saw the JPY rose sharply against the USD, chalking up 1.1% gains to finish at its strongest level since last May. In tandem, the 10Y JGB yield was also on the upside, signalling the market pricing in a hike during the upcoming BoJ meeting. On the data front, Flash Japan’s Manufacturing PMI dipped below the 50-growth threshold level in July compared to the market forecast 50.5 and may challenge BoJ’s plan to raise interest rates. In the meantime, the yuan strengthened 0.2% to close at 7.264 amidst the overall dollar weakness. The commodity-linked AUD dropped further to mark the eighth straight day of drop.

Malaysia: The ringgit posted gains for the third consecutive session this week, albeit the trading range was relatively tight, within 4.672-4.677. Malaysia’s June inflation data was underwhelming as it landed at 2.0% y/y, below the market forecast of 2.2%, as June was the month the price cap on diesel price was lifted.

Other Markets

Gold: Gold erased some recent gains, falling 0.5% to USD2,398/oz, as UST yields picked up.

Crude oil: Brent and WTI gained 0.9% on the day, taking a breath of relief after three straight sessions of bearish runs. Crude inventories in the US fell 3.74 million, down for the fourth week. The drawdown supported oil prices on Wednesday.

Source: AmInvest Research - 25 Jul 2024