FX HIGHLIGHTS

Global: The dollar weakened by 0.29% to 98.002 after September retail sales unexpectedly fell by 0.3% m/m from a gain of 0.6% m/m in August (cons: 0.3%), marking the first decline since February 2019, mainly due to lower sales of motor vehicle (-0.9% m/m from 1.9% m/m), building materials (-1.0% m/m from 1.4% m/m), and hobbies and online purchases (-0.3% m/m from 1.2% m/m). Besides, the dollar was partly weighed down by reports from the Fed’s Beige Book which suggest the economy was slightly weaker than in the summer. Thus, it supports our view for a rate cut in October with market expectations rising to 84.2% from 72.9%. The Dow fell 0.08% to 27,002 while S&P500 slipped 0.20% to 2,990. The UST10-year fell 3.15bps to 1.740% while gold prices rose 0.62% to US$1,490/oz. The pound rose 0.35% to 1.283, the highest level since May following positive developments for a Brexit deal. While the positive Brexit story is encouraging, we remain fairly cautious. Volatility risk remains. The euro rose 0.35% to 1.107 on the back of a weaker dollar and speculations that the German government may introduce spending stimulus in a bid to support its economy through an ongoing soft patch. On the data front, the September inflation slowed to 0.8% y/y from 1.0% y/y in August (cons: 0.9%). The yen strengthened slightly by 0.09% to 108.8 after investors flocked into the the safe-haven asset. The yuan fell 0.16% at 7.093 against the dollar, digesting the recent trade data and trade discussions with the US. Brent surged 1.16% to US$59.42/bbl while WTI gained 1.04% to US$53.36/bbl due to signs that Opec+ may decide to extend the supply cuts during its upcoming meeting in Vienna this December.

Malaysia: The MYR fell slightly by 0.06% to 4.195. The KLCI gained 0.55% to 1,574. As for the MGS market, the 7- and 10-year eased 0.5bps each at 3.380% and 3.410%, respectively while the 3- and 5-year yields remained unchanged at 3.120% and 3.230%. The 5-year IRS added 0.5bps to 3.280% while the 1-, 3- and 10-year IRS fell 0.5bps to 3.233%, 0.2bps to 3.230% and 2bps to 3.390%, respectively. The 7-year IRS was muted at 3.310% alongside the 3-month KLIBOR that stood firm at 3.38%. Against the major currencies, the MYR rose 0.10% to 1.691 vs. the CNY but fell 0.17% to 4.629 vs. the EUR, 0.81% at 5.345 vs. the GBP and 0.15% to 3.857 vs. the JPY. Among our Asean peers, the ringgit depreciated mostly; (THB) 0.33% at 7.240, (IDR) 0.02% at 3,378.6, (PHP) 0.18% to 12.30 and (VND) 0.11% to 5,531.2 while it appreciated marginally by 0.06% to 3.056 against the SGD.

MYR Outlook: We expect the MYR to trade between our support levels of 4.1836 and 4.1779 while our resistance is pinned at 4.1954 and 4.2011.

Focus of the day: We expect the latest US retail sales numbers —one of the leading indicators of recession that have been declining for three consecutive months – to raise concerns that the slowdown in business spending which is evident in the manufacturing sector may be spilling over into consumer spending. Thus, we foresee a rate cut in October. Besides, the US House of Representatives which has voted in support of Hong Kong pro-democracy protesters also cast doubt on prospects for the future of the trade deal between the US and China.

Source: AmInvest Research - 17 Oct 2019