Snapshot Summary…

Global FX: Dollar advanced as US PCE Price data was in line with expectations

Global Rates: UST yields rose on reduced anticipation of a large 50 bps US rate cut

MYR Bonds: Local govvies saw modest profit-taking activity amid an overall muted market

USD/MYR: USD/MYR rebounded to close above 4.32-level ahead of BNM MPC meeting this week

Macro News

Eurozone: Inflation in the eurozone slowed to 2.6% y/y in August 2024, down from 2.6% the previous month, marking the weakest increase in consumer prices since July 2021, according to a preliminary estimate. The slowdown was primarily driven by a significant drop in energy costs, which fell by 3% y/y compared to a 1.2% rise in July, while inflation for non-energy industrial goods decreased to 0.4% from 0.7%.

United States: US PCE price index rose by 0.2% m/m in July 2024, up from 0.1% in June and in line with expectations. Service prices increased by 0.2% m/m, while prices for goods remained unchanged. The core PCE index, which excludes food and energy, also rose by 0.2% m/m, matching the pace seen in June. Food prices saw a 0.2% m/m increase, while energy prices stayed flat. On an annual basis, the PCE inflation rate held steady at 2.5%, slightly below the 2.6% forecast.

The University of Michigan consumer sentiment for the US was revised upward to 67.9 in August 2024 from an initial reading of 67.8, although it still fell short of market expectations of 68.

Fixed Income

Global Bonds: UST yields rose on Friday. The 2Y and 10Y rose slightly by 2 bps and 4 bps, thus adding to their rise for the week. The 2Y ended the week and month at 3.92% and the 10Y at 3.91% thus reducing their inversion to just -1 bps, compared to 0 bps last week and -35 bps last month. The print of in line PCE inflation data for July reduced the anticipation of a large 50 bps cut.

MYR Government Bonds: There was modest profit-taking activity in the onshore govvies space last Friday with benchmark papers closing flat amid month end flows. IRS also rose amid the current negative swap spreads. Overall market was muted ahead of the US PCE data release after hours last Friday.

MYR Corporate Bonds: Ringgit corporate bonds saw mostly weaker trading on Friday, when the govvies segment ended flat. We saw various AAA and AA names being traded weaker, suggesting sentiment was guarded after the recent government bonds strong rally and USD/MYR touching its lowest level since 1Q2023.

Forex

United States: The dollar moved higher, in tandem with the spike in the UST yields as the latest PCE Price index data grew broadly in line with market forecasts, dashing any hope for faster and deeper rate cuts by the US Fed.

Europe: The euro and British pound fell 0.3% each as the dollar strengthened on Friday. On the data front, the euro area inflation dropped to the lowest level since mid- 2021. ECB Executive Board member Isabel Schnabel said that the central bank should proceed cautiously with rate cuts as the battle against inflation isn’t yet over. Over the weekend, ECB Chief Economist Philip Lane said that the path for inflation to return to 2.0% “is not yet secure”.

Asia Pacific: The Japanese yen weakened 0.8% on the day despite Tokyo inflation data on Friday supported the case for a further BoJ rate hike. The reading showed both headline and core Tokyo CPI growth in August rebounded to 2.6% y/y and 2.4% y/y from 2.2%, each. In China, the yuan firmed slightly by 0.1% as news flows showed that yuan benefitted from month-end flows and dollar selling by exporters.

Malaysia: The USD/MYR rebounded on Friday to close above 4.32-level amid lack of data flow. This week, the focus would be on the BNM’s decision for its monetary policy where collective consensus is expecting the central bank to stand pat at the current rate of 3.00%, or sustaining an accommodative policy to aid economic growth.

Other Markets

Gold: Gold fell as the dollar was supported while the PCE inflation data came in line with expectations.

Crude oil: Oil fell even though the dollar was supported as the PCE inflation data coming in line with expectations reduced expectation of a large Fed rate this month.

Source: AmInvest Research - 2 Sep 2024