Snapshot Summary…

Global FX: The Dollar fell following the lower US July PPI report

Global Rates: UST curve bull steepened in tandem with Bunds and Gilts curve

MYR Bonds: Notable trading volume in the PDS space despite light trading activities in the govvies space

USD/MYR: Ringgit extended its gains due to the weakening dollar

Macro News

Australia: Australia's Westpac-Melbourne Institute Consumer Sentiment index surged by 2.8% m/m in August 2024 to reach a six-month high of 85.0, surpassing market expectations of a 0.5% rise and a 1.1% decline in the prior month. This increase was driven by improved perceptions of family finances, with sub-indices for current and future finances seeing notable gains. Tax cuts and other fiscal measures became more apparent while fears about rate rises subsided. Consumer confidence in economic conditions for the next year also rose, although sentiment for the next five years dipped slightly. Despite a positive outlook on major purchases, concerns lingered about the cost of living, while job sentiment suggested a gradual labour market slowdown.

United Kingdom: UK’s unemployment rate dropped to 4.2% q/q in 2Q2024, lower than market expectations of 4.5%. The total number of unemployed individuals decreased by 51 thousand to 1.44 million, with significant declines seen in those unemployed for up to 6 months. Concurrently, the number of employed individuals rose by 97 thousand to 33.1 million, primarily driven by an increase in part-time and self- employed workers, offset by a decline in full-time employees.

United States: US PPI saw a modest 0.1% m/m increase in July 2024, following a 0.2% uptick in June. The price of goods rose by 0.6% m/m, marking the most significant increase since February, driven primarily by energy costs, particularly a 1.9% m/m surge in gasoline prices. Conversely, prices of services declined by 0.2% m/m, the most significant drop since March 2023, mainly due to a notable decrease in trade services by 1.3% m/m. On a year-on-year basis, producer inflation decreased to 2.2% from an upwardly revised 2.7% in June. The core PPI remained unchanged monthly and stood at 2.4% annually, surpassing forecasts of 0.2% and 2.7%, respectively.

Fixed Income

Global bonds: The UST curve bull steepened and extended its gains last night, following the more tepid producer inflation reading, providing further evidence that the inflationary pressure in the US economy is abating and the Fed does not need to be cautious in executing its rate cut plan. Post-PPI data, markets are pricing at a 53.5% probability that the Fed will cut FFR by 50 bps during the upcoming meeting in September, up from a 50% probability before the data. In the meantime, the same bull steepening trend was also seen on both the Bunds and Gilts curves.

MYR Government Bonds: Overall, the MYR bond market trading activities remained light due to a lack of catalysts, while we saw some profit-taking activities as we approached market closing. However, today, we might see some volume toward the bullish side as the US PPI data grew slower than expected. On the IRS front, trading levels across all maturities recovered slightly, with 5Y IRS last traded at 3.400, circa 3bps higher from the previous day.

MYR Corporate Bonds: In the PDS space, overall trading volume was noticeably heavier at MYR1.4 billion despite the muted sentiment in the govvies space. Buying interests were seen in high-quality papers, particularly infra- and energy-related papers. We also saw traders load up on specific banking papers (CIMB Group, Affin Islamic, and HLB) and consumer-related papers (7-Eleven, Aeon).

Forex

United States: The dollar index fell by 0.6% following the lower US July PPI report and dovish remarks from Atlanta Fed President Bostic. Additionally, a surge in stock prices on Tuesday decreased the need for the dollar, contributing to the currency's decline. The FX market now awaits the US CPI release. The consensus expectation is for the July headline CPI to rise 0.2% m/m versus -0.1% m/m the previous month. A higher CPI than before, and if it beats consensus, should parry USD weakness in the short term.

Europe: Upbeat UK employment data while downbeat US PPI data conspired to boost the pound as it moved 0.1% higher to 1.276. Next up is today, when the UK CPI is due for release. The consensus is that the headline CPI rate will rise 2.3% from 2% the prior month. Likewise, the euro was boosted post-US PPI release, even though the ZEW index for Economic Sentiment for Germany fell by 22.6 to 19.2, below market expectations of 32.0.

Asia Pacific: Ahead of pertinent Chinese data and a weak dollar, the yuan found support even though PBoC fixing of the currency was heard at its weakest in around nine months. The PBOC set the midpoint rate of the USD/CNY rate at 7.1479, although this was still about 281 pips firmer than Reuters' estimate. China’s data on tap comprises industrial production, retail sales, and the unemployment rate. The yen was flat against the dollar ahead of US inflation data but remained supported given persistent BoJ hawkish expectations by the market. News reported that Japan's parliament plans to hold a special session on 24 August to discuss BoJ's decision to raise rates last month.

Malaysia: The ringgit continued to benefit from dollar weakness; USD/MYR closed 0.2% firmer at 4.447 yesterday. Ringgit was also aided ahead of Malaysia's GDP release later this week. The consensus expectation for 2Q2024 GDP is +5.8% y/y against +4.2%.

Other Markets

Gold: Gold showed little change as market participants looked forward to US CPI data on Wednesday.

Crude oil: Oil snapped its five-day streak of gains as the prospect of a potential crude surplus overshadowed concerns about an escalation in the Middle East conflict. In the news, the IEA maintained its 2024 global oil demand outlook but reduced its outlook for 2025 amid concerns over China's demand. It sees 2025 demand rise by 950k bpd but is down 30k bpd from its previous forecast. IEA left the 2024 growth forecast unchanged at 970k bpd.

Source: AmInvest Research - 14 Aug 2024