Snapshot Summary…

Global FX: USD gained amid rise in UST yields and releases of weak PMI services numbers in Europe and China

Global Rates: UST yields surged amid fresh concerns over inflation as news broke that Saudi Arabia and Russia will maintain production cuts through 4Q2023

MYR Bonds: The local market continued to be cautious before this week's MPC, and 10-15Y part of the yield curve inching up 1~2bps and IRS rates up 2-3 bps

USD/MYR: Little Support to MYR Yesterday as We Head Closer to MPC Meeting

Macro News

Australia: The Reserve Bank of Australia (RBA) maintained its cash rate at 4.10% during its September meeting, marking the third consecutive month without a rate change. The RBA noted that while inflation had peaked, it remained too high and would persist for some time. The RBA projected that inflation would be around 3.25% by the end of 2024 and return to the target range in late 2025.

China: The Caixin China General Composite PMI for August 2023 decreased slightly to 51.7 from July's 51.9, marking the eighth consecutive month of private sector expansion but at a slower pace, mainly due to a milder increase in the services activity. While new orders grew moderately, it was the fastest rate since May. Employment saw the most significant rise since February, with both manufacturing and services reporting modest job creation.

South Korea: South Korea's annual inflation rate in August rose to 3.4%, up from July's two-year low of 2.3% and exceeding market expectations. This increase was attributed to adverse weather conditions and rising global energy prices. Food prices experienced the most significant increase in four months, while transportation prices fell less sharply than before. Other factors contributing to higher inflation included housing, clothing, furnishings, health, communication, recreation, education, restaurant and hotel costs, and miscellaneous goods and services.

Fixed Income

Global bonds: UST weakened to start the week after the US was closed for a holiday. The 10Y closed 10 bps higher to just slightly below the 4.30% level. There were fresh concerns over inflation as news broke that Saudi Arabia and Russia will maintain production at reduced levels during 4Q2023. In US data, factory orders fell 2.1% m/m in July vs +2.3% in June. European bonds also fell despite weak data. ECB policymaker Joachim Nagel reiterated that inflation remains too high.

MYR Government Bonds: While US markets were closed for Labor Day holiday, market participants digested weaker-than-expected PMI for August for both China (51.8 vs 53.5 expected) and Eurozone (46.7 vs 47.0 expected), sending sovereign bond yields higher across the board. Local market continued to be cautious before this week's MPC, and 10-15Y part of the yield curve inching up by 1~2bps.

MYR Corporate Bonds: Corporate bonds saw modestly firmer movement yesterday alongside cautious MGS trading. Traded volume surged to over MYR1.0 billion but due to high volume along select GG papers. AA3 PKNS 03/26 debuted at 4.60%. AAA Rantau 03/29 saw MYR60 million traded, last at 3.96% (-3 bps).

Forex

US: The dollar gained amid rise in UST yields and releases of weak PMI services numbers in Europe and China. The DXY index rose 0.5% to 104.81. There was a dollar negative comment from Fed Governor Waller, signalling support for a pause in Fed hikes, indicating policymakers can wait for data. In addition, there could also be some pressure on USD in short term period after oil prices continued to climb.

Europe: Mild support for Europe’s currencies after reaching past week’s lows. Strong dollar and weak data pressured sentiment on Tuesday. Eurozone July’s PPI fell 0.5% m/m (expected -0.6%; last -0.4%). Eurozone August Services PMI fell to 47.9 from 50.9 (expected 48.3). Germany's August Services PMI fell to 47.3 from 52.3, coming within expectations. The UK August Services PMI fell to 49.5 from 51.5 (expected 48.7). Aside, in what could be a positive for ECB hawks, the latest Consumer Expectations Survey from the ECB showed that inflation expectations for the coming year remains at 3.4% while the 3-year outlook rose to 2.4% from 2.3%.

Asia-Pacific: CNY weakened due to soft data. AUD found little support amid USD strength and lower CNY as RBA left its cash rate unchanged at 4.10%, as expected. China's August Services PMI fell to 51.8 from 54.1 previous month and vs 53.6 expected. South Korea's August CPI beat expectations at 3.4% y/y (consensus 2.7%) and up vs 2.3% in July. USD/KRW rose 0.8% to 1,331 yesterday.

MYR: Ringgit weakened across the board including along the crosses despite regional currencies posting greater losses vs the USD. Sentiment was cautious for the MYR after the Caixin China Services PMI missed forecast, but MYR trading was also cautious ahead of this week’s MPC and seeing MGS inching up 1-2 bps and IRS rates up 2-3 bps.

Other Markets

Gold: USD Bullish Movement Was Negative for Gold, Which Fell 0.9% Overnight.

Crude Oil: Crude oil prices rallied by 1% along both Brent and WTI. Saudi Arabia and Russia agreed on Tuesday to extend their voluntary production cuts through the end of this year. The deal should see trimming of 1.3 million barrels of crude supplies.

FBM KLCI: Bursa Malaysia closed lower on Tuesday, pressured by the weak China economic data. Foreign investors were net sellers of MYR58.4 billion Malaysian shares yesterday while onshore retail investors net sold MYR29.3 million. Onshore institutional investors took up the slack as they net bought MYR87.7 million worth of shares.

US Equities: US equities posted losses as investors took note of higher UST yields and continued rise in global crude oil price due to projected output cuts just as global services PMI data in China and Europe disappointed.

Source: AmInvest Research - 6 Sept 2023