Snapshot Summary…

Global FX: The DXY index extended its bearish run at the start of the week

Global Rates: US yields reversed higher, driven by strong ISM services index

MYR Bonds: local govvies were supported by last week’s global bonds rally

USD/MYR: The ringgit rose sharply as it is currently trading at a level last seen since May 2023

Macro News

Japan: The au Jibun Bank Japan Composite PMI for July 2024 was 52.5, slightly below the flash estimate 52.6. Despite the decline manufacturing activity, which unexpectedly contracted, the private sector continued to expand for the sixth time this year, mainly due to robust growth in the service sector. New orders rose, driven again by services. Employment growth remained steady, with a moderate and accelerating rate compared to June.

United Kingdom: The S&P Global UK Composite PMI for July 2024 was adjusted upward to 52.8 from the initial estimate of 52.7, indicating a quicker expansion than June's 52.3. This growth in private sector economic activity was driven by heightened demand, the most robust since April 2023, with exports contributing positively.

United States: The ISM Services PMI in the US increased to 51.4 in July 2024, surpassing market forecasts of 51. This suggests a moderate recovery in US services activity. New orders recovered, rising to 52.5 from 47.3 in June, which boosted business activity to 54.5 from 49.6. Employment levels for service providers also rose for the second time this year to 51.1 from 46.1, countering concerns raised by a weak jobs report on the US economy's health.

Fixed Income

Global bonds: US bond yields reversed higher from yearly lows, and the curve reinverted along the 10Y/2Y after briefly turning positive. Yields initially fell amid concerns over a hard landing. Still, they were lifted as the ISM Services index was strong, and Chicago Fed President Austan Goolsbee said US jobs data does not indicate an incoming recession. The 10Y yield fell to a low of 3.667% before rising to close at 3.777%.

MYR Government Bonds: Malaysia’s government bonds were aided by last week’s rally in global bonds on the heels of the low NFP number and the global risk-off sentiment whilst equities markets slumped. In tandem with lower yields, IRS was traded lower by 2-8 bps across all tenors, with 5Y IRS last at 3.36% (-5 bps).

MYR Corporate Bonds: Corporate bonds were also supported, but flows were overall lacking as the market watched the risk-off sentiment in global markets. Not too many names appeared on the daily traded list yesterday, though we found a mixture of AAA and AA names being dealt. Notable trades include AA-rated JEP 12/29 and 12/30being bought. The former fell 18 bps to 4.06%, and the latter dropped 12 bps to 4.11%. AAA rated Danum 02/25 fell 10 bps to 3.53%.

Forex

United States: The ICE dollar (DXY index) started on weaker footing this week, extending last Friday’s bearish run for the second consecutive day. The index open price during the Asia session was slightly above the 103.2 level but then gave up its ground to trade below the 103 level. While the ISM Services data beating market expectations may have supported the DXY from posting further losses, the dovish speech by Fed Mary Daly saying that it is now “confirmed” that the job market is softening, but it is crucial not to let it soften too much may have kept the dollar to close in red. We also saw the dollar lose out against other safe-haven currencies, such as the JPY (+1.6% d/d) and the CHF (+0.8% d/d).

Europe: The EUR took advantage of the dollar’s weakness and rose 0.4%. The Eurozone’s Composite PMI increased to show slightly faster growth in services and manufacturing. It was also good news for the UK as its Composite PMI went up to 52.8 for July from 52.3 (cons.: 52.7). But the GBP found little to no support from the better data release as it fell 0.2% to close Monday at 1.278.

Asia-Pacific: We noted that the USD/JPY pair sank 1.6% on the day, benefitting from traders' unwinding carry trades amidst the heightened volatility and risk-averse condition due to recessionary fears. At the same time, the yuan closed its session at its strongest level since late last year as news flows suggest traders also unwind short positions against the Chinese currency. This week, markets are on the lookout for China’s external trade data out due this Wednesday, with collective expectations for its exports to rebound further to 9.6% y/y. The commodity-linked AUD fell 0.2% as investors braced themselves ahead of RBA’s meeting later today. We think that the central bank will maintain its cash rate at the current level of 4.35% because its inflation rate remains far off from its target.

Malaysia: The ringgit firmed sharply by 1.6% to finish Monday at 4.427 after briefly touching an intraday low of 4.395. It is now trading at a level last seen in May last year. While the Ringgit may sustain its momentum towards the upside, the current global volatilities and recessionary fears could subdue those gains.

Other Markets

Gold: Gold dived 1.3% as the precious metal allure failed to attract investors amidst a major global stock sell-off and risk-off environment.

Crude oil: Oil continued its decline, albeit at a modest pace compared to last Friday, as traders assessed the continuing signs of economic slowdown and geopolitical tension between Israel and Iran.

Source: AmInvest Research - 6 Aug 2024