Snapshot Summary…

Global FX: The dollar pared earlier gains following the mixed developments in the US data

Global Rates: We noted yields down by 1 - 5 bps overnight as declines in the stock markets aided the demand towards the UST

MYR Bonds: MYR sovereign bonds rallied further by 1 to 3 bps across the curve, with corporate space seeing mixed movements

USD/MYR: Ringgit firmed again, benefitting from a lower dollar on Thursday

Macro News

Malaysia: Malaysia's leading economic index rose by 0.8% m/m in May 2024, marking the fourth positive reading. This marks the fourth positive reading this year, with the number of new companies registered, the expected sales value in manufacturing, the Bursa Malaysia Industrial Index, and the number of approved housing units growing. The coincident index rose by 0.6% m/n in May, showing a significant improvement from the 0.3% growth seen in April.

United Kingdom: UK manufacturing sector sentiment fell to -9 in July 2024 from 9 in the previous month, while export optimism remained flat at 0% after the previous quarter's increase to +6%. Despite recent cooling sentiment due to underperforming output growth, manufacturers are optimistic about the near-term outlook, expecting output growth to strengthen in the next quarter. Companies plan to increase stock levels to meet demand, and the proportion of manufacturers operating below capacity has notably decreased, leading to a more positive outlook for hiring and investment.

United States: In Q2, the US economy grew by 2.8%, up from 1.4% in Q1, beating expectations of 2%. Consumer spending rose to 2.3% from 1.5%, driven by goods like vehicles and gasoline. Private inventories contributed 0.82 percentage points to growth. Non-residential investment increased to 5.2%, with equipment investment surging to 11.6%. Government spending rose by 3.1%, led by defence. Residential investment fell by -1.4%. Net trade dragged growth down as imports outpaced exports for the second quarter. We anticipate that the forthcoming PCE inflation report, expected later today, will have an impact on economic indicators.

China: The People’s Bank of China unexpectedly cut its one-year policy loan rate from 2.5% to 2.3% in July 2025, marking its first reduction in nearly a year and the largest since April 2020. This action followed the central bank's recent decrease in a key short- term rate. It was intended to support the ailing economy in response to weaker-than- expected Q2 GDP results and mixed economic data from June.

Fixed Income

Global bonds: Declines in the stock markets aided the safe-haven demand of the US government bond market, and yields were noted to be down by 1 - 5 bps overnight. However, US Treasuries pared gains after the Commerce Department data pointed toadvance 2Q2024 GDP at a 2.8% annualised rate or beating the 2.0% forecast. On the other hand, the inflation reading alongside the GDP data supported the UST; the core PCE price index fell to +2.9% in 2Q2024 from +3.7% in 1Q.

MYR Government Bonds: MYR sovereign bonds rallied further by 1 to 3 bps across the curve, led by a sharp rally seen in 10Y U.S. treasuries by circa 5 bps in the Asian session. Meanwhile, the IRS continued to drift lower, with 5Y IRS falling 2 bps. We suspect more foreign flows are returning to the local bond space lately due to the higher probability of a US rate cut in September.

MYR Corporate Bonds: Corporate bond trading was mixed yesterday, and we saw realignment across various names in the AA rating segment, especially in the power and infrastructure sectors. Of these, we noted YTL Power 03/27 (AA3) shed 5 bps to 4.12%, while AAA-rated Tenaga 08/38 fell 7 bps to 4.03%, but Tenaga 08/40 edged higher by 1 bps to 4.05%.

Forex

United States: The dollar swung within the intraday range of 104.08 – 104.46, and it pared earlier losses after the US’s real GDP for 2Q2024 rose faster than expected. The DXY index closed Thursday, still above 104-level, and may receive further support today, but the significantly slower growth in quarterly Core PCE Price could mute those supports.

Europe: There were mixed movements among the EUR and GBP as the former gained 0.1% on the day while the latter lost 0.4%. The cautious sentiment of Bundesbank President Joachim Nagel supported the euro, implying that the ECB’s decision would be made by meeting and warned against pre-committing to what would happen in September.

Asia-Pacific: The JPY paused its rally run induced by the unwinding of carry trades after US GDP data surprised towards the upside. Nonetheless, the overnight index swaps indicated that there is as much as 57% probability for the BoJ to raise interest rates during the upcoming end-July policy meeting. Meanwhile, the yuan firmed on Thursday and briefly touched its strongest level since May at 7.209 despite the PBoC's easing measures by cutting its one-year medium-term lending facility.

Malaysia: The ringgit remained steady on its ground, gaining 0.2% against the USD to finish Thursday at 4.661, inching towards our weekly support of 4.631 – 4.640. Our next support area for the USD/MYR pair would be around 4.60, a level we last saw at the end of 2023. Today's mixed US data last night could provide a steady direction for the ringgit.

Other Markets

Gold: The precious metal’s price dropped 1.4% to USD2,365/oz after the US advance GDP estimate suggests that the Fed will take time to cut its interest rates.

Crude oil: Oil prices rose, with Brent climbing 0.8% and WTI rising 0.9%, riding on the lingering sentiment of bigger inventories drawdown than expected on Wednesday.

Source: AmInvest Research - 26 Jul 2024