Snapshot Summary…

Global FX: Dollar index starts the week on weaker note as investors shift focus towards inflation data

Global Rates: The UST Market Closed Mixed, But Bund and Gilt Market Were Weaker

MYR Bonds: Ringgit govvies bond saw bearish movement, despite mixed activities in corporate bond space

USD/MYR: The Ringgit Firmed Amidst Tight Trading Range

Macro News

Malaysia: Malaysia's industrial production (IP) for July 2023 increased by 0.7% y/y (June 2023: -2.2% y/y) although the index declined by 1.8% (June 2023: 2.2%) from the monthly perspective. By sector, the manufacturing sector saw a contraction of 0.2% y/y (June 2023: -1.6% y/y). The mining sector improved by 4.2% y/y (June 2023: -6.4% y/y), while production in electricity sector moderated to 1.5% y/y (June 2023: 2.8% y/y).

China: In August 2023, China's banks issued CNY 1.36 trillion in new yuan loans, a significant increase from July's CNY 0.35 trillion. This move was driven by the central bank's efforts to support economic growth due to weak demand both domestically and internationally. Household loans, including mortgages, saw a sharp increase to CNY 392.2 billion, in contrast to a contraction in July. Corporate loans also surged to CNY 948.8 billion from CNY 237.8 billion. Outstanding yuan loans grew by 11.1% in August, matching the rate observed in July.

Fixed Income

Global bonds: US Treasuries closed mixed with the 10Y up another 2 bps from last Friday, despite a lack of fresh market drivers including neither macro data nor Fed comments as policymakers were on blackout before next week’s FOMC meeting. UK 10Y Gilt yield rose 5 bps on Monday as the market awaits incoming data including monthly GDP and employment figures. German yields were slightly higher as markets awaits the ECB meeting this week and eager to hear if policymakers will continue their hawkish narrative. Japan's yield rose to a 9-year high after Governor Kazuo Ueda said the BOJ could see data by year-end to determine whether it can end the era of negative interest rates.

MYR Government Bonds: MGS yields rose by 1-2 bps, with drivers including BOJ Governor Kazuo Ueda intimating possible end to negative interest rate policy by year end. Bonds also saw some reaction to the government mentioning possible plan for a new capital gains tax. The 10Y MGS rose 1 bps to 3.86%.

MYR Corporate Bonds: There was mixed activity yesterday in the ringgit corporate bonds market. Modest net buying activity met with profit taking pressure amidst another day of underperforming govvies market ahead of global central bank actions in the coming week. Traded volume in PDS fell to below MYR350 million from almost MYR700 million prior day. In the GG space, a handful of Danainfra and Prasarana led activities, but yields were mixed. Prasarana 09/29 shed 2 bps to 3.81% on MYR30 million volume while longer dated DanaInfra 06/38 fell 2 bps to 4.13% on MYR40 million volume.

Forex

US: The dollar index started the week on weaker note, closing Monday 0.5% lower to 104.57 after reaching its highest level since March 2023 last Friday. Sustained USD demand driven by stronger-than-expected economic data recently may subside this week as investors wait for US consumer inflation due Wednesday and producer inflation on Thursday.

Europe: Against weaker dollar, both the EUR and GBP rose 0.5% and 0.3%, respectively. Amidst still high inflation and signs of weakening economic growth, market players are pricing in for rate hold by the ECB during September’s meeting this Thursday with only 39.1% probability of a rate hike, compared to 51% probability priced during mid-August 2023. The European Commission lowered Eurozone’s growth forecast for 2023 to 0.8% from 1.1%, citing weakened demand due to high inflation rates. In the UK, one of the BoE’s policymakers Catherine Mann is in favour of further rate hikes, noting it is easier to fix overtightening compared to persistently high inflation.

Asia-Pacific: The CNY appreciated sharply by 0.7% as the PBoC set yuan’s daily midpoint fixing, at 7.2147 per dollar, which is three pips firmer than the previous fix of 7.2140 and 1,289 pips firmer than Reuters’ estimate of 7.3437, the largest on record. For the past few months, the central bank has set firmer-than-expected daily fixing rate to counter the yuan’s decline, in a sign of discomfort of the currency’s recent weakness. At the same time, the Japanese yen surged 0.8% against the dollar on BoJ Chief Kazuo Ueda’s remarks relating to the end of negative interest rate era. In tandem with risk-on mode, the Aussie dollar gained 0.9% on Monday.

MYR: The ringgit firmed 0.1% to settle at 4.674 and traded within the tight range of 4.672-4.680. Prime Ministertabled the 12th Malaysia Plan mid-term review (12thMP MTR) yesterday and revealed that the government will increase the development expenditure ceiling by MYR15 billion to MYR415 billion throughout 2021 – 2025. Note that MYR64.3 billion and MYR71.6 billion were spent in both 2021 and 2022.

Other Markets

Gold: Gold prices rose 0.2% to settle at USD1,922/oz as dollar eased ahead of key US inflation data this week.

Crude Oil: Oil price was largely unchanged after it had surged last week on concerns of fresh Saudi and Russian cut on crude oil production. Brent settled at USD90 per barrel while WTI closed at USD87 per barrel.

FBM KLCI: KL stock market pared early losses and closed with marginal gains of 0.01% amidst mixed regional performances. Foreign investors sold a net of MYR39.6 million shares on Monday.

US Equities: Wall Street bourses closed higher as market players bet on the prospect the US Fed keeping its interest rate unchanged during its upcoming September meeting. Dow Jones rose 0.3%, S&P 500 climbed 0.7%, and Nasdaq advanced 1.1%.

Source: AmInvest Research - 12 Sept 2023