FX HIGHLIGHTS

Global: The dollar fell 0.17% to 98.288 due to global risk-on sentiment which led investors adding more exposure ahead of US earnings season. Both the Dow and S&P500 rose 0.89% to 27,025 and 1.00% to 2,996, respectively. The UST10-year was up 4.2bps to 1.771% while gold prices dropped 0.82% to US$1,481.01/oz. The pound surged 1.42% to 1.279, the highest level in five months following reports that Brexit talks are inching towards a draft deal. Although the current optimism may brew further catalyst for the pound to take it even higher to the 1.30 levels, there is still a lot to overcome even if a deal is agreed – most importantly parliament would need to back the agreement and this is far from assured. The economic release in the UK includes: (1) Aug unemployment rate up at 3.9% from 3.8% in July (cons: 3.8%); (2) wage growth eased to 3.8% y/y in Aug from 3.9% y/y in July (cons: 4.0%); and (3) claimant count change rose to 21.1K in Sep from 16.3K in Aug (cons: 26.5K). The euro rose marginally by 0.05% to 1.103 following the positive Brexit headlines. The Japanese yen fell 0.42% to 108.9 due to weaker appetite for safe-haven assets and disappointing economic release i.e. Aug industrial production down by 4.7% y/y vs. +0.7% y/y in Jul (cons: -4.7%). The yuan fell 0.20% to 7.082 as factory gate prices continued to slide for the fifth straight month by 1.2%y/y in September, hit by weakening demand and mounting trade tensions with the US. September’s headline inflation rose the fastest since November 2013 by 3% y/y from 2.8% y/y due to the surge in pork prices due to African swine fever (see Economic report below) .

Malaysia: The MYR fell 0.08% to 4.192. The KLCI lost 0.09% to 1,566.2. In the MGS market, the 3-year was muted at 3.120% while the 5- and 7-year yields added 1bps to 3.230% and 1.5bps to 3.385%, respectively. The 10- year eased 1bp at 3.415%. Both Brent and WTI shaved off 1.03% to US$58.74/bbl and 1.46% to US$52.81/bbl. Against the major currencies, the MYR rose 0.34% to 3.851 vs. the JPY and 0.12% to 1.689 vs. the CNY while it fell 0.09% at 4.621 vs. the EUR and 0.70% at 5.302 vs. the GBP. Regionally, the MYR was higher mostly; (THB) 0.05% at 7.263, (IDR) 0.10% at 3,379.3, (PHP) 0.03% to 12.32 but it weakened; (SGD) 0.03% at 3.058 and (VND) 0.04% to 5,537.4.

MYR Outlook: We expect the MYR to trade between our support levels of 4.1598 and 4.1708 while our resistance is pinned at 4.2058 and 4.2177.

ECONOMICS HIGHLIGHTS

China – Calls for stimulus support

September's headline inflation edged higher to 3.0% y/y from 2.8% y/y in August, the fastest in six years as a result of surging pork prices following the African swine fever outbreak. Meanwhile, core inflation stood at 1.5% y/y in September, the same August’s. The factory-gate inflation declined further to 1.2% y/y compared to 0.8% y/y in August, marking the sharpest fall since July 2016.

China

Calls for stimulus support

September's headline inflation edged higher to 3.0% y/y from 2.8% y/y in August, the fastest in six years as a result of surging pork prices following the African swine fever outbreak. Meanwhile, core inflation stood at 1.5% y/y in September, the same August’s. The factory-gate inflation declined further to 1.2% y/y compared to 0.8% y/y in August, marking the sharpest fall since July 2016. As the economy faces a deflation in factory gate prices, added with muted demand side pressure, we feel there is a strong case for policymakers to unveil additional stimulus. But we expect it to be a “flood-like” stimulus measure due to its highly leveraged economy. As such, we maintain our 2019 and 2020 GDP projections at 6.2% and 5.8%, respectively. Also, with the central bank having limited tools in its monetary policy, we feel the policymakers may consider additional RRR cuts.

• The inflation trajectory continued to trend upwards with September's headline inflation edging higher to 3.0% y/y from 2.8% y/y in August, the fastest in six years. Meanwhile, core inflation, which strips out volatile food and energy prices, stood at 1.5% y/y in September, the same August’s. • The higher inflation was driven by an uptick in food prices, up 11.2% y/y in September from 10.0% y/y in August, the highest reading since October 2011, as pork prices soared 69.3% y/y, the seventh straight month of increase, following a 46.7% y/y jump in August. The outbreak of the African swine fever has caused significant disruptions in pork supply, which in turn pushed up prices of other food products i.e. eggs (8.2% y/y from 3.6% y/y) • Meanwhile, the factory-gate inflation declined further to 1.2% y/y compared to 0.8% y/y in August, marking the sharpest fall since July 2016. Cost of production fell deeper into the contraction region to 2.0% y/y in September versus -1.3% y/y in August due to lower raw material prices (-4.8% y/y from -3.5% y/y) and processing (-1.2% y/y from 0.8% y/y). • As the economy faces a deflation in factory gate prices, added with muted demand side pressure, we feel there is a strong case for policy makers to unveil additional stimulus. But we expect it to be a “flood-like” stimulus measure due to its highly leveraged economy. Although the trade talks have fuelled some optimism among investors, there are still lots of work needed given the existing tariffs are still in place. As such, we maintain our 2019 and 2020 GDP projections at 6.2% and 5.8%, respectively. Also, with the central bank having limited tools in its monetary policy, we feel the policymakers may consider additional RRR cuts.

Source: AmInvest Research - 16 Oct 2019