Snapshot Summary…

Global FX: Strong dollar seen overnight amid firm jobs data and caution over Fed hikes as markets watch central bankers’ comments at the Jackson Hole symposium

Global Rates: UST Yields Remain Elevated Amid Incoming Fed-guidance

MYR Bonds: MGS Benchmarks Closed Modestly Firmer Amid Global Safe-haven Demand the Day Prior

USD/MYR: Ringgit Trading Buoyed by Weak Global Data the Day Before

Macro News

United States: In July 2023, new orders for durable goods in the US experienced a sharp decline of 5.2% m/m, the largest drop since April 2020. This significant decrease was driven by a major reduction in demand for transport equipment, particularly civilian and defense aircraft. Orders for transport equipment fell by 14.3%. On the other hand, orders for machinery, electrical equipment, appliances, fabricated metal products, and primary metals increased.

South Korea: The Bank of Korea held its base rate steady at 3.50% in August, the fifth consecutive meeting with no change. This decision aligns with expectations, as the bank aims to address easing inflation. Despite concerns over rising household debt and a slower economic recovery due to reduced private consumption, the bank kept its 2023 GDP growth forecast at 1.4%. However, the projection for 2024 was lowered to 2.2% from 2.3%. Inflation is expected to rise from August and hover around 3% until year-end, with an annual rate of 3.5% for 2023.

Indonesia: Bank Indonesia kept its benchmark 7-day reverse repurchase rate unchanged at 5.75%, as inflation eases to just above the central bank's 2% to 4% target range.

Fixed Income

Global bonds: Focus turns towards the Jackson Hole central bankers’ conference, for insight into the direction of global monetary policy direction. Fed chair Jerome Powell is yet to speak but overnight saw Philadelphia Fed President Patrick Harker (FOMC voter) saying at he needs to see more data, though he indicated that the Fed has done enough to curb inflation for now. However, Boston Fed President Susan Collins (nonvoter) said more hikes may be needed to bring down inflation towards the 2% target. The 10Y UST remained elevated, rising 5 bps to close at 4.24% and the 2Y up 6 bps to stay above 5% at 5.02%. Elsewhere, bund and gilts yield also edged higher as traders turned toward Jackson Hole, after the prior day’s strength due to safe haven demand on the back of weak PMI data this week. Aside, in US data releases, durable goods orders fell 5.2% m/m in July and initial jobless claims fell 10K to 230K in the week ended 19 August.

MYR Government Bonds: MGS market strengthened for a second consecutive day, spurred by gains in global bonds which came on the back of weak PMI numbers. Traded volume was heavy at MYR3.2 billion flows. Anecdotally, we heard traders picked up MGS due to attractive valuations after the past couple of weeks of losses. We noted 5Y and 7Y MGS fell 2 bps each yesterday. Meanwhile the 10Y MGS edged 1 bps lower to 3.85%.

MYR Corporate Bonds: Ringgit corporate bonds also closed steadier yesterday. Total traded volume remained heavy at MYR705 million. Heavily traded include AA1 Sabah Credit 02/28 unchanged at 4.12% on MYR60 million volume and AA1 GENM Cap 08/25 at a steady 4.48% on MYR40 million volume.

Forex

US: The USD was up by 0.5% amid Jackson Hole to close the day at 103.98 after the healthy labour market data. Initial jobless claims fell to 230K last week from 240K from the previous week and lower than the market forecast of 240K. The dollar was also supported from remarks by the Boston Fed President Susan Collins (non-voting) saying that further rate hikes are still on the table. Market players are now focusing on Jerome Powell’s Jackson Hole speech to get clearer picture on Fed interest rate outlook.

Europe: The EUR fell 0.5% to close at 1.081 against the strong dollar. ECB governing council member Joachim Nagel said that it is “much too early” to talk about a rate hike pause as he is not convinced that inflation is already under control (the current inflation of 5.3% is still way above the target 2.0%). On the data front, manufacturing confidence indicator in France fell to 96 in August from 101 in the prior month, marking the lowest level since January 2021. In the UK, the pound remained on the downside, falling by 1.0% as the currency was pressured by lingering sentiment of deteriorating economic prospects a day after the worse-than-expected PMI data release. In addition, the monthly balance of retail sales indicator (Confederation of British Industry) dropped further to -44 from -25, underpinning the fastest drop in trade since March 2021 amidst rising interest rates and sluggish demand.

Asia-Pacific: It was a mixed picture in the region as JPY weakened 0.7% to 145.83 as traders waited to see signs of intervention by authorities to prop up the yen as it did last year. The CNY also depreciated 0.02%. News flow showed that the PBoC increased yuan bill sales in offshore market to help stabilise the yuan by making it expensive for speculators to short the currency. The central bank sold CNY35 billion worth of bills in Hong Kong on Tuesday, exceeding the CNY25 billion of the bills due this month. Usually, the PBoC would auction the same amount as those bills mature and selling higher amounts would reduce yuan liquidity in the market. Meanwhile, the KRW firmed 1.3% following Bank of Korea (BoK)’s decision keeping its interest rate at 3.50% and its governor Rhee Chang-yong tweaked his hawkish stance by saying a rate cut before the end of 2023 is possible.

MYR: The ringgit strengthened 0.3% to 4.646 and traded within the range of 4.639 and 4.650 following the softer US PMI data released from the previous session, which trimmed the expectations of further rate hikes. Focus today will be on inflation data where the market is looking at 2.1% y/y growth rate after 2.4% in June.

Other Markets

Gold: Gold Prices Rose 0.1% to USD1,917/oz on Recent Weakness in Economic Data.

Crude Oil: Brent rose 0.2% to USD83.36 per barrel while WTI rose 0.3% to USD79.70 per barrel as tight supplies worries remained.

FBM KLCI: Malaysia's FBM KLCI fell on hints profit taking activity, down 11.42 points to close at 1,440.11 but had risen to 145.72 intraday high. Gains owed to local institutions’ net buying of MYR38.9 million shares.

US Equities: The US stock market fell on profit taking and worries over monetary policy direction amid Jackson Hole. The Dow Jones fell 1.1%, the S&P500 down 1.3%, and the Nasdaq down a larger 1.9%.

Source: AmInvest Research - 25 Aug 2023