Snapshot Summary…

Global FX: The dollar continued its bearish run after the FOMC minutes release

Global Rates: US government bonds continued to rally on Fed cut expectations

MYR Bonds: Firm auction reflects ongoing strong demand for new govvies supply

USD/MYR: Slightly wider trading range for USD/MYR ahead of Jackson Hole this week and Malaysia’s inflation news today

Macro News

Japan: Japan's exports surged by 10.3% y/y in July 2024, to reach a seven-month high, showing a significant increase from the previous month's growth rate of 5.4%. This marked the eighth consecutive month of rising shipments, supported by a weakened yen and a resurgence in the automotive industry. Imports into Japan increased by 16.6% y/y exceeding market expectations of 14.9% and showed a significant acceleration from the 3.2% rise seen in June. Notable increase in imports were from the US (21.9%), South Korea (21.7%) and China (20.8%).

United States: The FOMC minutes were released for the July meeting when the Fed decided to keep the federal funds rate unchanged. Several policymakers acknowledged that there had been progress towards the 2% inflation target, although inflation levels are still relatively elevated. Recent economic indicators suggest that the economy is continuing to grow at a strong pace. While job growth has slowed down and the unemployment rate has ticked up slightly, it remains at a low level. Chair Powell mentioned that a rate cut in September could be a possibility if inflation aligns with expectations. He also stated that there are scenarios in which the Fed might reduce rates multiple times within the year or not make any cuts at all, depending on how the economic situation evolves. Aside, the Bureau for Labor Statistics had also adjusted its estimates for non-farm payrolls to -818k.

Fixed Income

Global bonds: US Treasuries continued to post gains as expectations for Fed cuts were sustained. Overnight saw preliminary downward revisions to the NFP data by the Bureau of Labor Statistics, anticipated about 68k down per month in the 12-month period to March this year. Meanwhile, the FOMC minutes reinforced the expected September rate cut as policymakers see progress in inflation. Bunds also rose on the NFP and FOMC news.

MYR Government Bonds: The MYR4.0 billion 5Y GII auction yesterday scored BTC of over 3x and the strong demand saw the average yield down about 2 bps below the WI levels. The auction reflects the firm demand for new govvies issuances though the secondary market saw late profit taking yesterday.

MYR Corporate Bonds: Ringgit corporate bond flows was slanted towards higher grade papers and there was a shade bias towards net-buying than profit-taking activity. The heavier flows occurred on AAA rated PSEP 03/31 which closed unchanged at 3.86% and AAA rated PASB 06/26 also unchanged at 3.69%.

Forex

United States: The dollar dropped further, marking the fourth straight day of a bearish trend, to close at around the 101-level, the lowest since end of last year. Overnight, those losses were stretched by the revision to the non-farm payrolls figure during 12- month period through March 2024, showing the US economy created less jobs than what was originally reported. In addition, bearish dollar continued after the release of minutes from latest Fed meeting, suggesting a September interest rate cut had “grown increasingly probable”.

Europe: Sill non-event data flow meant the directions on the EUR and GBP on Wednesday was mostly dictated by the movement on the dollar, and softer dollar pushed both currencies to the upside. Investors await the Flash PMI data due to be released later today to try to get a clearer picture of how the economies are faring.

Asia Pacific: The Japanese yen held steady around the 145-level as global markets wait for BoJ Governor Kazuo Ueda to discuss the decision of the interest rate raise last month in front of Parliament. In the meantime, the CNY weakened slightly on Wednesday. The AUD also held steady around the 0.67-level as traders consolidated their positions after the recent bull run.

Malaysia: The USD/MYR trading range was nearly similar to the previous day but a tad wider; around 4.363-4.385, suggesting traders are on the sidelines ahead of key event Jackson Hole symposium. Malaysia CPI today is to be watched though expectations remain for a muted inflation; consensus is for +2.1% y/y in July, or a similar pace in the month before.

Other Markets

Gold: Gold traded near record high after the FOMC minutes and a downward revision to the US payrolls.

Crude oil: Brent and WTI declined amid concerns to the US economy as traders also balanced crude supply expectations. Also, sentiment in the crude market was also guarded ahead of Jackson Hole.

Source: AmInvest Research - 22 Aug 2024