Snapshot Summary…

Global FX: Dollar extended its loss due to disappointing US housing starts data

Global Rates: UST curve moved slightly lower, trimming Thursday’s sell-off

MYR Bonds: Modest trading flows in the local bond space

USD/MYR: Ringgit was relatively stable after the release of Malaysia’s 2Q2024 GDP data

Macro News

Malaysia: Malaysia’s GDP expanded by 5.9% y/y in 2Q2024, surpassing the initial estimate of 5.8% growth. This growth marked the highest GDP growth rate since the fourth quarter of 2022, driven by solid service sector activity performance, which saw a 5.9% q/q growth compared to 4.8% in 1Q2024, mainly driven by wholesale and retail trade. Manufacturing output also improved by 4.7% q/q compared to 1.9% in the previous quarter. Meanwhile, construction output gained momentum, increasing by 17.3% q/q compared to 11.9% in the last quarter, driven by civil engineering and specialised construction activities. For the first half of the year, the economy expanded by 5.1%, outpacing the 4.1% growth in the same period in 2023.

New Zealand: The Business NZ Performance of Manufacturing Index in New Zealand rose to 44.0 in July 2024, up from 41.1 the previous month. This suggests that, despite some improvement, the manufacturing sector has been contracting for the 17th consecutive month. Certain key sub-indexes showed slight improvements, with production increasing to 43.4 (35.7 in June) and new orders rising to 42.5 (39.0 in June), although both are still significantly contracting. On the other hand, Employment decreased to 43.1 (compared to 44.0 in June).

United Kingdom: UK’s retail sales increased by 0.5% m/m in July 2024, rebounding from a revised 0.9% decrease in June and meeting market expectations. Non-food store sales saw a notable increase of 1.4% m/m, driven by summer discounts and sporting events. However, sales at food stores remained flat, while sales of automotive fuel decreased by 1.9% m/m following a 2.2% rise in the previous period.

United States: The University of Michigan's consumer sentiment index for the US increased to 67.8 in August 2024, rising from 66.4 in July. This uptick represents the first increase in five months. Consumers' expectations improved for personal finances and the five-year economic outlook, reaching its highest level in four months. This suggests that while developments such as elections can impact future expectations, they are unlikely to alter current assessments significantly.

US housing starts dropped by 6.8% m/m in July 2024, representing the most significant decrease since March, bringing the level down to the lowest point since 2020.

Fixed Income

Global bonds: The UST curve moved slightly lower Friday, trimming Thursday’s sell- off. In addition, mixed data released during the session pointed towards continued softening in the US economy. However, it does not suggest a challenging landing scenario like what the market was pricing in last week. We noted the UST 2Y yield fell 4 bps while the 10Y yield shed 3 bps.

MYR Government Bonds: Bond prices were corrected, and the 10Y MGS was just below 3.80%, with daily volume averaging MYR2-4 billion. Bond valuation looks better and could rise further as we head towards September (FOMC). W/w MGS rose by about 2-3 bps across the curve and about 7-8 bps m/m. Barring any risk-off or liquidity concerns, given the medium-term outlook, the current level should represent a decent short-term entry point for MYR bonds.

MYR Corporate Bonds: Trading flows in the corporate space were subdued at MYR298 million after US retail sales data on Thursday were stronger than expected. Among notable trades, MYR50 million on Cagamas 06/34 done at 3.880%, MYR20 million on YTL Corporation11/28 (AA1) done at 3.762% and MYR40 million on Southern Power Generation (AA-) done at 3.990%.

Forex

United States: Mixed data released on Friday night prompted the dollar to post further losses, closing last Friday to its lowest level since early this year. Disappointing housing starts and building permits pressured the dollar and erased some optimism of a strong US economy following the prior day’s retail sales.

Europe: The EURUSD pair rose to its more than seven-month high as the dollar fell, while the GBP ended above the 1.29 level. Some boosts for the British pound after UK retail sales data came broadly in line with market forecasts, suggesting the economy is growing decently and will grow faster once the effects of the rate cut materialises.

Asia Pacific: The yuan pared losses to end firmer last Friday. The lack of fresh drivers meant the yuan remained held back by China’s growth worries, especially after the prior day’s release of mixed economic data. However, late dollar weakness on Friday then supported the yuan. The yen also gained against the dollar, but the Japanese currency looks pressured after recent strength, especially as the outlook for larger than expected Fed cut quantum (>25 bps) at the next meeting has subsided. Meanwhile, the AUD was stronger than the USD, aided by recent firm jobs data. RBA Governor Michele Bullock said Friday that it was premature for rate cuts as underlying inflation remained high.

Malaysia: The Ringgit was relatively stable and finished below the 4.45 level last week. The faster-than-expected 2Q2024 Malaysia GDP growth may have supported the ringgit before the mixed US data released after market hours. The official data showed 5.9% y/y growth compared to the prior quarter’s 4.2% and market forecast of 5.8%.

Other Markets

Gold: Gold surged to a new record high, driven by increasing expectations of a U.S. interest-rate cut and escalating geopolitical tensions. The precious metal quickly regained lost ground following a sell down earlier in August.

Crude oil: Brent and US crude oil futures declined by over 1% following reports that Qatar advised Iran against attacking Israel during the ongoing Gaza cease-fire negotiations

Source: AmInvest Research - 19 Aug 2024