Snapshot Summary…

Global FX: The dollar dropped to near the 104 level with a downside bias that may materialise today

Global Rates: Both Bunds and Gilts curve rallied for the fifth straight day while the UST yields dropped by 9 – 12 bps across tenors

MYR Bonds: MYR govvies were on their third-day winning streak, alongside buying interests continue to overwhelm the PDS market ahead of FOMC

USD/MYR: Ringgit surged, aided by the outlook for Fed rate cut by September

Macro News

Australia: Australia’s CPI increased by 3.8% y/y in June 2024, slightly decreasing from the recent 4.0% peak in May. This slowdown was primarily due to lower prices in the transport sector, with a decrease from 4.9% to 4.2% y/y driven by a slowdown in automotive fuel cost growth from 9.3% to 6.6% y/y. Conversely, housing prices saw an uptick to 5.5% from 5.2% y/y.

Japan: The Bank of Japan (BoJ) increased its key short-term interest rate at its July 2024 meeting to approximately 0.25%, up from the previous range of 0.0% to 0.1% set in March. BoJ forecasted that core inflation for FY2024 would decline to approximately 2.5%, lower than the 2.8% estimate made in April. The projection for core inflation in FY2025 and FY2026 is expected to be around 2%. Regarding GDP growth, policymakers revised their forecast for 2024 to 0.6% from 0.8%. The bank maintained its GDP outlook for fiscal years 2025 and 2026 at 1.0%.

United States: The US Federal Reserve kept the federal funds rate steady at a 23- year high of 5.25% - 5.50% for the 8th consecutive meeting, as widely anticipated. Policymakers acknowledged progress towards the 2% inflation target, though it remains somewhat elevated. Economic activity is still expanding at a solid pace, with job gains slowing and the unemployment rate rising slightly but staying low. However, it plans to hold off on rate cuts until it is more confident that inflation is on a sustainable path to 2%.

On another note, private businesses in the US added 122,000 workers to their payrolls in July 2024, the lowest in six months, following an upwardly revised 155,000 in June 2024. Job creation slowed as wage growth continued to decelerate. Annual pay growth for current employees slowed to 4.8% y/y, the lowest in three years, while pay growth for job changers decreased to 7.2%.

Fixed Income

Global bonds: Both Bunds and Gilts curve rallied for the fifth straight day, the longest streak since March, as the Eurozone’s inflation stagnated on an m/m basis in July, while market participants braced themselves and priced in a rate cut to happen during the BoE meeting later today. In the US, the UST yield curve drifted lower by 9 – 12 bps following the US Fed’s monetary policy meeting. The UST saw some losses after the FOMC maintained its interest rates at 5.25% - 5.50% but later erased those losses and turned to gains following Fed Chair Jerome Powell's cited that policymakers are now“attentive to the risks to both sides of its mandates” and September rate cuts “is on the table”.

MYR Government Bonds: Overall, the MYR bond was on its third-day winning streak following USDMYR tumbling by another 300 pips to below 4.600, which, further attracted local foreign buying interest into local bond space. Meanwhile, the general market is betting on a dovish tone from the Feds Chair ahead of the FOMC after- market hours while the decision to keep rates unchanged in July has been fully priced. Meanwhile, local IRS traded slightly lower, with 5Y IRS sliding by 1 bps.

MYR Corporate Bonds: Buying interests in the PDS space continue to dominate the market ahead of the FOMC meeting. Among notable trades were MYR100 million on Danainfra 04/40 done at 3.979%, MYR20 million on Rantau Abang Capital 01/32 (AAA) done at 3.858%, and MYR10 million on Batu Kawan 02/29 (AA1) done at 3.838%.

Forex

United States: The dollar extended its losses following the Federal Reserve's decision to maintain interest rates and BoJ raising its interest rate. The decline is also driven by the release of weaker-than-expected US ADP employment news. Fed Chair Jerome Powell Chair Powell mentioned the possibility of a rate cut in September during the FOMC meeting if inflation eases as expected. Market participants should remain cautious of upcoming US Non-Farm payroll data this Friday.

Europe: The euro was flat even though the US dollar was pressured. We think the Fed, though alluding to a rate cut in September, did not fully commit to doing so, which may have limited the euro's move overnight. The pound was sluggish as we await the BoE rate decision today.

Asia-Pacific: Policy tightening by the BoJ drove the JPY stronger as it tested the 105 level. The BoJ also said it will likely raise rates further in the future if it sees growth and inflation moving at a steady pace. Also aiding the currency was the release of retail sales, which rose to a four-month high. Meanwhile, there was pressure on the CNY as soft manufacturing PMI data showed contraction for a third consecutive month. The PMI of services also fell, though it remained above the 50 level at 50.2 in July from 50.5 in June. The AUD reversed from three-month lows as the latest CPI data for June fell to 3.8% after peaking at 4.0% the previous month.

Malaysia: The ringgit continued to strengthen, still aided by the outlook for a Fed rate cut by September. Meanwhile, expectations of a dovish BoE were another point towards ringgit strength yesterday before today's BoE meeting, as the GBPMYR pair dropped below 6.00 ringgit per pound. The ringgit was hovering below 4.600 late yesterday before the FOMC. As the ringgit has already breached our previous support level of 4.595 - 4.614, we now revise our weekly support level to be at 4.550 - 4.555, a level last seen in July 2023.

Other Markets

Gold: Gold continues to be supported but was seen off recent highs, boosted by Fed rate cut hopes and soaring oil prices amid the Middle East tensions.

Crude oil: Oil was lifted overnight, with Brent up 2.7% and WTI up 4.3%, as rising concerns over the Middle East spooked sentiment. According to a Reuters survey, US crude stocks fell by 3.4 million barrels last week, or about three times.

Source: AmInvest Research - 1 Aug 2024