Snapshot Summary…

Global FX: The dollar added another day of broad losses

Global Rates: Longer tenors yields down to two-week lows

MYR Bonds: Local govvies aided by strength in ringgit

USD/MYR: Favourable downside bias for the pair as it dipped to as low as the 4.36- level

Macro News

Eurozone: The annual inflation rate in the Euro Area increased to 2.6% y/y in July 2024 from the previous month's 2.5%. Energy cost rose significantly (1.2% y/y compared to 0.2% in June), while inflation slightly slowed for food, alcohol, and tobacco (2.3% compared to 2.4%) due to a decrease in the price growth of unprocessed food. The core inflation rate, excluding volatile items such as energy, food, alcohol & tobacco, remained flat from the previous month at 2.9%, surpassing the initial market expectation of 2.8%.

China: The People's Bank of China (PBoC) decided to keep the main lending rates unchanged in August and in line with market expectations. The one-year loan prime rate (LPR), which serves as the standard for many corporate and household loans, remained steady at 3.45%. The five-year rate, used as a benchmark for property mortgages, was also held at 3.85%. These rates remain at historically low levels after unexpected rate cuts in July. This action on Tuesday demonstrates China's effort to strike a balance, as Governor Pan Gongsheng recently emphasised a cautious approach, avoiding drastic measures for the economy.

Fixed Income

Global bonds: The UST Treasuries market rallied with yields on longer tenors down to two-week lows. The futures market, as reflected in Bloomberg’s WIRP function, depicts a pricing in of 100 bps rate cuts this year alone as we head towards the Jackson Hole summit later this week. Print of inline Canada CPI at 0.4% m/m in July, though up from negative territory (-0.1%) the previous month, aided the UST interest. The 10Y UST fell 6 bps overnight to close at 3.81%.

MYR Government Bonds: The government bond market continued to be aided by the ringgit strength, as the local currency was below the 4.390 level yesterday. That being the case, gains in bonds were slanted on shorter to medium tenors. Amid a sustained outlook for a Fed rate cut next month and UST yields remaining low, with the 10Y UST near 3.80%, we noted MYR IRS also moving lower.

MYR Corporate Bonds: Ringgit corporate bonds trading saw more interest yesterday. We think more interest may return in the short term if govvies trading continues to see net buying activity. For instance, yesterday’s trading saw interest in various AA1 to AA3 names compared to last week when the focus was on higher-grade AAA issuers. Yesterday, trading saw demand on papers such as Tanjung Bin Energy 03/31 (AA3),which fell 2 bps to 5.05%, and IJM Treasury IMTN 03/39 (AA3), which fell 1 bp to 4.18%.

Forex

United States: The dollar had another day of broad losses, adding to the prior sessions’ losses as there was a lack of data impetus, and overall sentiment remained tilted towards risk-on mode. In addition, the Fed's expected incoming rate cuts solidified further, albeit marginally, as Fed Governor Michelle Bowman said it is appropriate to begin “gradually” lowering interest rates if inflation continues to slow.

Europe: The weaker dollar sent both the GBP and EUR to their new fresh 2024 highs around 1.30-level for the former and 1.11-level for the latter. On the data front, the final inflation figure for the euro area came in unchanged from the initial estimate, with headline inflation at 2.6% y/y in July and slightly higher than 2.5% y/y in June.

Asia Pacific: The Chinese yuan strengthened further to close around its strongest level since the start of 2024. Aside from the weaknesses on the dollar, some support was driven by the PBoC’s decision to maintain the one-year and five-year loan prime rate at 3.45% and 3.85%, respectively, after it was trimmed during last month’s setting. The central bank set the yuan’s reference rate at 7.1325 per dollar, the firmest since early August. In the meantime, the yen firmed up 0.7% on the day. The BoJ released research papers highlighting structural changes in the country's working population, which leads to firms raising wages and services prices and possibly sustaining inflation pressure in the economy. This may bolster the case for the central bank to continue to hike its interest rates during future meetings. Meanwhile, the RBA released minutes from its latest August policy meeting, showing policymakers debated and almost hiked its key rates due to high underlying inflation. Those ‘meaningfully hawkish’ stances sent the AUD higher to its more than one-month high.

Malaysia: The USD/MYR pair had a narrower trading range during the day but dipped to as low as 4.36-level per dollar as global sentiments remained favourable for the ringgit. The performance was in tandem with dollar weaknesses and stronger other regional currencies.

Other Markets

Gold: Gold reached a new all-time high as optimism regarding potential U.S. interest rate reductions increased and central banks continued to accumulate reserves.

Crude oil: Oil prices declined by approximately 1% to reach a two-week low as worries over Middle East supply lessened following Israel's acceptance of a proposal aimed at resolving obstacles hindering a ceasefire agreement in Gaza.

Source: AmInvest Research - 21 Aug 2024