Snapshot Summary…

Global FX: The dollar rose slightly ahead of July US employment data

Global Rates: UST rallied on lingering mixed PCE data sentiment last week

MYR Bonds: Suspected foreign inflows prompted bullish local govvies space

USD/MYR: Ringgit strengthens as the dollar remains rangebound

Macro News

Malaysia: Producer price index (PPI) increased by 1.6% y/y in June 2024, rebounding from a 1.4% gain in the previous month, which was a three-month low. Prices rose more rapidly for agriculture, forestry & fishing (3.4% y/y compared to 1.3% y/y in May) and slightly for the manufacturing sector by 1.1% y/y. Conversely, prices moderated for mining (4.6% compared to 6.6%), electricity & gas supply (1% compared to 1.5%), and water supply (7.8% compared to 8.7%). With that in mind, from the perspective of consumer and producer inflation, we can safely conclude that there is a negligible impact from the first month of implementing diesel subsidy rationalisation.

United Kingdom: The monthly retail sales balance reported by the Confederation of British Industry (CBI) in the United Kingdom dropped to -43 in July 2024 from -24 in the previous month, significantly below the anticipated -20. This represents the second consecutive month of declining annual sales, with retailers attributing the downturn to unfavourable weather conditions and market uncertainty.

United States: The Dallas Fed Manufacturing Index fell to -17.5 in July 2024 from - 15.1 in the previous month, continuing a negative trend. Shipments significantly contracted to -16.3 due to weak demand for manufactured goods.

Fixed Income

Global bonds: The UST papers started the week on a relatively good note as the yield curve rallied by a few bps on lingering sentiment from last Friday’s mixed PCE Price data and ahead of the US Fed monetary policy decision. Both the Bunds and Gilts curves also rallied on the same sentiment, expecting the BoE to cut its rate by 60% probability. We posit that global bonds could remain steady and supported ahead of global central banks' decisions this week.

MYR Government Bonds: Local govvies space continued to rally with overall yields shifting lower by circa 3-5 bps across the curve in tandem with the USD/MYR pair dived below the key psychological level of 4.6500 for the first time since January and prompted, we suspect, better foreign inflow amidst still subdued foreign buying into Malaysia govvies. There was little change on the IRS front as the recent movement was deemed oversold despite 3M KLIBOR being traded slightly lower at 3.57%.

MYR Corporate Bonds: While the buying spree persisted in the corporate space, the trading flow was slightly subdued at MYR491 million ahead of the key global central banks meeting. Among notable trades were MYR5 million on TNB 08/32 (AAA), doneat 3.877%, MYR10 million on Public Bank 12/29 (AA1), done at 3.651%, and MYR10 million on UEM Sunrise 02/31, done at 3.968%.

Forex

United States: The dollar rose by 0.2% as traders prepared for an eventful week ahead, including policy decisions from the Federal Reserve and Bank of Japan on Wednesday, followed by the July US employment report released on Friday.

Europe: At the start of a busy week for central bank decisions, and as the dollar showed relative strength, we noted mainly flat trading in the EUR and GBP. This week, we have the Eurozone's inflation data and the BoE's policy meeting. Bloomberg's WIRP showed that market players are pricing in almost 60% probability for a rate cut to happen during BoE's Thursday meeting.

Asia-Pacific: The CNY was holding steady yesterday while the dollar was in range near 104.5. Traders were cautious as they waited for China's Politburo meeting to hear any new economic policy measures following last week’s PBoC actions to lower key interest rates and conduct lending operations. Traders also await this week’s release of July PMI figures. The JPY was also in range, coming before the BoJ policy meeting this week. Authorities may not normalise rates yet, but we expect them to signal a hawkish bias. Elsewhere, the AUD was also steady while traders waited for the latest inflation data, which is at risk of rising again before the RBA policy meeting set for next month.

Malaysia: The ringgit strengthened yesterday amid a rangebound dollar ahead of critical global monetary policy decisions. This week, we see the upside for ringgit, especially if the Fed tweaks its stance somewhat dovishly and the US NFP data continues to show weaker progress.

Other Markets

Gold: Gold edged lower yesterday in a cautious market before the central bank meetings. Expectations of a dovish Fed at the FOMC meeting this week could feed into gold sentiment, but ahead of the event, the market was cautious.

Crude oil: Risk aversion caused a tumble in oil prices overnight. On top of a cautious market before FOMC, sentiment continued to be negatively affected by worries over China's demand even after PBoC's rate cuts last week.

Source: AmInvest Research - 30 Jul 2024