Snapshot Summary…

Global FX: The dollar rebounded by 0.3%, driven by the weakening GBP and increasing safe-haven bid

Global Rates: Global bonds rallied after weak ISM PMI alongside higher-than- expected initial jobless claims

MYR Bonds: Bullish MGS market fuelled by lower yield on 10Y UST

USD/MYR: MYR remained well bid and hovering below 4.560

Macro News

Malaysia: The S&P Global Malaysia Manufacturing PMI fell slightly to 49.7 in July 2024 from 49.9 in June. This decline was driven by a slight decrease in new orders after three months of growth due to weak demand. Despite this, foreign sales increased for the fourth straight month, especially from Asia and Oceania. Business sentiment improved to a four-month high, with concerns lingering about the timing of a recovery in domestic demand.Eurozone: The economy’s unemployment rate rose slightly to 6.5% m/m in June 2024 from 6.4% in the previous month. The number of unemployed people grew by 41 thousand compared to the previous month, reaching 11.122 million. Annual unemployment stood at 6.5% y/y.

United Kingdom: The Bank of England (BoE) reduced its Bank Rate by 25 bps to 5%, which aligns with the expectations of a slight majority of the market. This rate cut marked a decrease from the benchmark rate, which had been at 16-year highs for a full year. This decision was influenced by the slowdown in UK inflation, despite the growth in services prices and the lingering risks that secondary effects could undo the progress made by the central bank. The Committee expressed its anticipation of declining headline inflation and the convergence of inflation expectations toward the target. Furthermore, the MPC indicated that the current restrictive policy is necessary to address the slack in GDP relative to its potential and to ease pressures in the labour market further, justifying a less restrictive policy stance.

United States: US initial jobless claims advanced by 14,000 to 249,000, reaching a new yearly high and exceeding the market consensus of 236,000. This uptick suggests that the US labour market continued to deteriorate during this timeframe, heightening speculation that the Federal Reserve may cut benchmark interest rates by September.

US ISM manufacturing PMI declined to 46.6 in July 2024 from 48.5 in June, marking the most significant contraction in US manufacturing activity since November 2023. This is driven by the impact of high interest rates on demand for goods, particularly affected by a new decline in new orders (47.4 compared to 49.3 in June). Additionally, factory prices increased faster (52.9 compared to 52.1 in June), primarily due to rising metals costs and pressure from electrical components' availability.

Fixed Income

Global bonds: Risk-off mode benefitted global bonds yesterday as stock markets retreated and commodity prices mostly fell. In addition, Gilts surged following the BoE cut its interest rate for the first time since early 2020 with a vote of 5-4, and traders are betting two more rate cuts incoming for the remainder of the year. Bunds also posted gains on the day. In the US, the UST curve bull-steepened after labour and economic data showed the US economy is weakening, further fall on headline ISM PMI alongside softer employment component, higher-than-expected initial jobless claims and lower- than-expected 2Q preliminary labour costs. The 2Y UST yield dropped as much as 11 bps, and the 10Y yield fell 5 bps below the 4.00% level.

MYR Government Bonds: The MGS market rallied yesterday to follow the lower yield on the 10Y UST level from the prior session at 4.02% after Fed Chair Powell hinted at a rate cut in September following the FOMC policy decision. However, some gains reversed as the rally did not carry into the evening trading session, following some market players coming out to take profits.

MYR Corporate Bonds: Hints of a Fed rate cut on Thursday night prompted buying interest to continue to overwhelm the market. We also noted a heavier flow of MYR800 million during the day. Among notable trades were MYR300 million on PTPTN 03/39 done at 3.959%, MYR30 million on TNB Power 06/42 (AAA) done at 4.024%, and MYR10 million on Malakoff Power 12/25 (AA-) done at 4.207%.

Forex

United States: The dollar increased by 0.3% to 104.42. The dollar recovered from a 3-week low and was slightly higher, mainly due to a safe-haven bid and weakness in GBP followed by a BoE rate cut.

Europe: The pound fell as it slipped by 0.9% and was hovering near the lowest since the start of last month. The pressure was coming from the BoE interest rate cut, though the voting was tight at 5-4, and Governor Andrew Bailey said the BoE would move with caution going forward. BoE economist Pill said that if inflationary pressures rise again, that could dictate the central bank's response. Meanwhile, amid the risk-off sentiment, the euro fell modestly against the late dollar strength. The euro marked a small depreciation of 0.3% overnight.

Asia-Pacific: The dollar found support during the Asian session yesterday, and the release of Caixin manufacturing PMI slipping back to below the 50 level of 49.8 in July from 51.8 the prior month and against the consensus of 51.4 saw CNY weaken. Meanwhile, the JPY continued with gains. After this week, the BoJ moved to tighten monetary policy.

Malaysia: The ringgit remained well bid but reversed some gains after dipping below 4.560 yesterday, and today is seen hovering near 4.553 as markets await the latest US non-farm payrolls and unemployment numbers. Outlook for better interest rate differentials remain the main booster for the ringgit, and we think we can see that amid the ongoing rally in the onshore bond market.

Other Markets

Gold: Gold fluctuated near record levels as traders assessed higher-than-expected US jobless numbers, which could bolster the likelihood of Fed cuts in September.

Crude oil: Oil was on track for its fourth consecutive weekly decline as worries about demand in the world’s two largest economies overshadowed rising geopolitical risk

Source: AmInvest Research - 2 Aug 2024