Snapshot Summary…

Global FX: The dollar rebounded as market players are cautious ahead of key data

Global Rates: The UST curve steepened and the 10Y/2Y yields are getting close to reversing their inversion

MYR Bonds: Local govvies trading was healthier after the new benchmark MGS 07/34 auction

USD/MYR: The ringgit kept its strength around 4.34-level

Macro News

Australia: In July 2024, Australia’s monthly Consumer Price Index (CPI) rose by 3.5% y/y, slower than 3.8% y/y recorded in June. Key contributors to this rise included housing costs, which increased by 4.0%, and food and non-alcoholic beverages, which saw a 3.8% rise. Notably, the alcohol and tobacco category experienced a significant 7.2% increase. Transport costs also rose by 3.4%, driven by a 4.0% increase in automotive fuel prices. Conversely, electricity costs decreased by 5.1% due to government rebates. The trimmed mean CPI, which excludes volatile items, rose by 3.8% over the same period.

Malaysia: In July 2024, Malaysia’s Producer Price Index (PPI) increased by 1.3% y/y, slightly down from the 1.6% rise in June. The agriculture, forestry, and fishing sectors saw a rise of 3.4%, the mining sector posted a 2.2% increase, while the manufacturing sector recorded a more modest 0.9% increase. The water supply and electricity & gas supply indices rose by 9.0% and 0.3%, respectively. We have not observed any impact on producer and consumer prices from the rationalisation of diesel subsidies in the second month of its implementation, unlike in the past.

On another note, news flows showed that Malaysia is considering reintroducing a broad-based consumption tax to bolster its finances, according to people familiar with the matter. This move is being weighed as an alternative to cutting subsidies for commonly used gasoline. Prime Minister Anwar Ibrahim’s cabinet has been discussing the viability of reinstating the Goods and Services Tax (GST), which was introduced in 2015 and repealed in 2018. For the record, the recently announced Pre-Budget Statement 2025 mentioned this broadly.

Fixed Income

Global Bonds: Another steepening move was seen in the UST market, with 2Y yields falling 3 bps while the 10Y yield climbed by a slight 1 bps, further narrowing the 10Y/2Y inversion to 3 bps. No significant drivers were seen during the US session apart from the 5Y USD70 billion auction, which saw a decent 2.41x BTC and ahead of key PCE Price Index data on Friday. During the European session, the Bund bull flattened as investors braced for key Germany’s inflation rate later today.

MYR Government Bonds: Overall, the bidding interest for the auction of the new 10Y benchmark MGS 07/34 yesterday was decent, with the final BTC landing at 2.006x. Meanwhile, the local bond market was relatively muted before the morning auction.Still, trading activities somewhat improved in the second half, with the market mostly dominated by selling pressure as we suspect market players continued to take profit approaching month-end.

MYR Corporate Bonds: Trading volume in the corporate space was healthy at MYR940 million, with most of the volume slated towards high-grade papers (GG-AAA). We also noted buying interests on infrastructure and highway names such as Infracap Resources 04/36 with MYR30 million changed hands and done at 4.012%, and MYR70 million on Amanat Lebuhraya Rakyat 10/35 at 4.140%.

Forex

United States: The dollar recouped some of the prior sessions’ losses as there was a lack of data drive on Wednesday, and market players are cautious ahead of key data during the upcoming Thursday and Friday.

Europe: The euro and pound fell against a rebounding US dollar overnight. As the DXY rose by 0.5% to above 101.0, the euro fell 0.6% to 1.112 and the pound down by 0.5% to 1.319. We think euro trading was guarded ahead of the August CPI release on Friday and the July unemployment rate print on the same day. Consensus estimate for August headline CPI is +2.2% y/y or much lower than the previous month's +2.6%.

Asia Pacific: The yuan was flat amid a firm dollar, with the PBoC seen with less support for the currency yesterday, which we think goes along with the need to limit yuan strength if a more accessible monetary policy to aid China’s macroeconomic scenario is required. Prior to the market opening, the PBoC set the USD/CNY midpoint at 7.1216, which Reuters reported to be 6 pips weaker than its estimate. Australia reported its CPI at 3.5% in July, from 3.8% in June but above 3.4% expectations. The Aussie dollar remained near its eight-month high.

Malaysia: Strength in MYR continued, with levels near 4.340 this morning. We see the following support for USD/MYR at 4.310, with the next stop after that at 4.300. However, we think cautious trading is expected ahead of US PCE data.

Other Markets

Gold: Commodities were pressured, coming alongside the dollar rebound. Gold fell 0.8% overnight but remained 5.1% higher for the month, ahead of the widely anticipated Fed rate cut next month.

Crude oil: Oil prices fell >1% overnight. There's pressure from the dollar finding some strength and worries over demand, especially from China. The demand worries weighed over geopolitical risks and the possible withdrawal of more than 1 million barrels of Libyan oil exports. The EIA reported a smaller-than-expected fall of 846k barrels in US crude inventories for last week, against the expectation of a 3 million barrel decline.

Source: AmInvest Research - 29 Aug 2024