Snapshot Summary…

Global FX: The DXY Index Closed Friday on Positive Note Following Non-farm Payrolls Data

Global Rates: UST, Bunds and Gilts Market Saw Weaker Sentiment

MYR Bonds: Ringgit bonds were little changed after Merdeka holiday on lack of fresh leads and ahead of the non-farm payrolls data

USD/MYR: The Ringgit Weakened Amidst Mixed Regional Currencies Performance

Macro News

United States: The US unemployment rate increased to 3.8% in August 2023 from 3.5%, surpassing the expectations of 3.5%. The number of unemployed individuals grew by 514,000 to 6.4 million, while unemployment rose by 222,000 to 161.5 million. The U-6 unemployment rate, which covers those who have given up job hunting and part-time workers seeking full-time jobs, rose to 7.1%, the highest level since May 2022, from 6.7%.

China: China’s Caixin General Manufacturing PMI surged to 51.0 from July’s 49.2, surpassing expectations and reflecting the strongest factory activity expansion since February. Output and new orders both grew, while employment increased for the first time in six months. However, foreign sales remained weak, indicating global recession risks, while work backlogs slightly increased due to weather-related issues.

Malaysia: Malaysia’s manufacturing sector stayed at a PMI score of 47.8 in August 2023, indicating a 12th consecutive month of contraction. Production was slow due to limited new orders, with exports falling for the fourth months. Manufacturers cut jobs at the sharpest rate since December 2022, and supply deliveries took longer time to arrive. Input costs rose due to higher raw material prices and exchange rate weakness, while output costs also increased.

Malaysia: The Prime Minister announced the New Industrial Master Plan (NIMP) 2030, which seeks to transform the economy and advancement of the manufacturing sector. The plan requires an estimated RM95 billion in total investment over seven years, with the government contributing around 10% to stimulate private sector involvement and foster an inclusive ecosystem for small and medium enterprises.

Fixed Income

Global bonds: US Treasuries posted losses last Friday after non-farm payrolls rose by 187K in August, against consensus expectation of about 175K and the ISM manufacturing PMI climbed to 47.6 against 47.0 consensus. However, the overall news was mixed with regards to the jobs report. The July NFP was revised down to 157K from the earlier estimate of 187K and June was revised down to a much lower 105K from 185K previous estimate. The August private sector payrolls saw an increase of 179K against 160K expectation, but the July figure was revised down to 155K from 172K, and June payrolls were revised to 86K from 128K. The August unemployment rate up ticked 3.8%, versus 3.5% in July and market expectations. The August average hourly earnings rose 0.2% m/m (consensus 0.3% m/m) versus 0.4% m/m in July. Hence, the UST market sustained w/w gains especially with added news of more manufacturing PMI numbers in global markets which came in mixed. The Eurozone manufacturing PMI fell to 43.5 from initial estimation of 43.7. Bunds and gilts closed modestly weaker but firmed on w/w.

MYR Government Bonds: Ringgit bond market were little changed at start of the new month in a quiet note amid absence of fresh leads and players were mostly side-lined before the US jobs release after hours. Some safe haven demand was noted as Malaysia’s manufacturing PMI was unchanged at 47.8, still in contraction level.

MYR Corporate Bonds: MYR corporate bonds continued to see mostly net buying interest as we think investors were picking up good credits for yield pickup, including infra and banking names. We noted AA2 RHB Bank 09/32 traded on RM20 million and closed at 4.15% and A1 Bank Islam 10/30 at 4.22% down 2 bps on RM20 million volume as well.

Forex

US: Mixed development in Friday’s labour data showed that the labour market is getting softer. However, stoking the dollar was hawkish comments from Cleveland Fed President Loretta J. Mester (non-voter) who said that inflation remains too high. The index gained 0.6% ahead of long weekend due to the Labour Day holiday.

Europe: Firmer dollar led to weaker EUR and GBP, both falling by 0.6% and 0.7%, respectively. Manufacturing PMI for Eurozone was revised slightly lower to 43.5 in August from 43.7. On the other hand, the final Manufacturing PMI for UK came in at 43.0, higher than preliminary 42.5.

Asia-Pacific: The JPY depreciated 0.5% and hovered around 146-level as traders mulled over the mixed tone communicated by BoJ policymaker. Its most dovish member Toyoaki Nakamura warned for “cautiousness” on making policy changes as the central bank’s sustainable inflation target remains out of reach. The tone was in contrast with other board member Naoki Tamura which said that the target is “clearly in sight” and the policy tweak could come as early as 2024. In China, the PBoC announced to cut the foreign exchange reserve requirement ratio by 200 bps to 4.0% beginning 15th September. The move was seen to alleviate the yuan’s weaknesses amidst China’s cloudy economic prospect and the anticipation of further monetary policy easing by the central bank. At the same time, the KRW firmed 0.3% against the USD. South Korea’s Manufacturing PMI dropped further to 48.9 in the contractionary region, marking 14th straight month of the current downturn.

MYR: The ringgit depreciated slightly by 0.2% to 4.646 and traded within the range of 4.629 and 4.649. Malaysia’s manufacturing sector continued to see decline in output as the Manufacturing PMI stood at 47.8 in August, unchanged from the prior month.

Other Markets

Gold: Gold price ended Friday slightly lower after the release of better US ISM manufacturing numbers but was countered by the release of higher US unemployment rate.

Crude Oil: Crude oil prices continued their surge on Friday. Prices had been aided in the past week by the anticipation of further output cuts by Russia and OPEC+.

FBM KLCI: KL stock market was buoyed by the unveiled NIMP and improved regional risk appetite, aided in part by better reading in China’s manufacturing PMI. FBM KLCI rose 11.5 points or 0.8%. Foreign investors sold a net RM39.8 million Malaysian shares.

US Equities: US equities closed mixed as rise in the unemployment rate sparked some doubts over a Fed rate hike. The Dow index increased by 0.3%, S&P500 rose 0.2% but Nasdaq posted losses of 0.02%.

Source: AmInvest Research - 4 Sept 2023