Snapshot Summary…

Global FX: USD Was Buoyed by the Higher Reading of US CPI

Global Rates: The UST and Gilt Market Saw Some Strength While Bund Market Closed Mixed

MYR Bonds: Malaysian government bonds saw another day of slight weakness as there were cautious trading despite higher trading volume in PDS market

USD/MYR: The Ringgit Weakened for the Second Straight Day, Despite Strong CNY

Macro News

United States: The annual inflation rate in the United States accelerated for the second consecutive month, reaching 3.7% in August 2023 up from 3.2% in July. The increase was driven by rising oil prices over the past two months and base effects from the previous year. Notably, energy costs fell by 3.6%, a smaller decline compared to the 12.5% drop in July. Transportation services costs also increased more, rising by 10.3%. However, inflation slowed for electricity prices, food, shelter, new vehicles, and apparel. Core inflation, which excludes food and energy, slowed to 4.3%.

United Kingdom: The UK economy contracted by 0.5% m/m in July 2023, marked the largest decline this year and reversing the 0.5% growth observed in June. The services sector was primary contributor to this contraction, particularly due to a 3.4% decline in the human health activities industry caused by NHS strikes and the subsequent cancellation of appointments and procedures. Consumer-facing services showed no growth, with the retail trade sector contracting by 1.2%. Additionally, production fell by 0.7%, with manufacturing shrinking by 0.8%, mainly in the manufacture of rubber and plastics products. The construction sector declined by 0.5%.

Japan: In September 2023, the Reuters Tankan sentiment index for Japanese manufacturers declined sharply to +4, down from August's one-year high of +12. The drop is attributed to concerns about rising input costs, weak demand both domestically and internationally, and global uncertainties like the Ukraine war and Sino-US tensions.

Fixed Income

Global bonds: UST strengthened slightly overnight with the 10Y closing 3 bps lower to 4.25%. Sentiment in the bond market reacted with early losses as US headline CPI rose 0.6% m/m in August, as expected, led by rising gasoline prices, and Core CPI rose 0.3% m/m vs consensus 0.2%. However, on year-on-year basis, headline CPI was up 3.7% vs 3.2% in the previous month in while core CPI was up 4.3% vs 4.7% and led to the late buying interest. On the other hand, German Bund yields closed mixed overnight and there was cautious sentiment before the ECB meeting later this week. UK’ s July GDP contracted by 0.5% m/m vs consensus 0.2% and June 0.5%, and unchanged y/y vs consensus 0.4% and June 0.9%. The 10Y Gilt yield fell slightly.

MYR Government Bonds: Yesterday, Malaysian government bonds saw another day of slight weakness as there were cautious trading. Sentiment in the market followed higher UST yields coming ahead of the US CPI release after Malaysia market hours. The 10Y MGS led losses as it rose 1 bps to close at 3.89%.

MYR Corporate Bonds: There was better interest in corporate bonds yesterday as we think investors were in for selected papers for yield pickup. Total traded volume was MYR662 million. Amongst the more heavily traded papers were AA- Sunway 07/27 at 4.53% on MYR90 million volume, and AA1 UOB MTN 10/32 at 4.11% on MYR60 million volume.

Forex

US: The dollar index rose post-CPI releases as data was largely within expectations and ended the day at 104.77. While the headline reading reaccelerated to 0.6% m/m, the largest gains since June 2022 due to the jump in gasoline price, investors held on to their expectations still, that the US Fed will keep its interest rate unchanged during upcoming September meeting. The market is pricing in a 97% chance the Fed will keep rates at current level, higher than 92% priced on Tuesday, according to CME's FedWatch Tool.

Europe: The EUR fell 0.2% against firmer dollar and cautious mode ahead of ECB meeting. News flow suggests that the ECB expects inflation in the region will remain above 3.0% in 2024, which solidify the case for another rate hike by the central bank. Traders are now pricing in 66.3% probability of a rate hike during this meeting compared to last Thursday’s 35%. On the other hand, the UK’s sterling was flat after data showed that the British economy contracted by 0.5% m/m in July, more than what market expected of 0.2% contraction.

Asia-Pacific: Before the market opens, the PBoC set the yuan’s midpoint rate at 7.1894 compared to previous fix of 7.1986. Median estimate of Bloomberg survey was 7.2808. This has led to the firming of yuan by 0.3% to settle at 7.272. The JPY weakened 0.3%. Japan’s producer inflation in August was lower at 3.2% y/y compared to July’s 3.4% y/y and marked the lowest reading since March 2021. Korea’s won was on the downside as well, falling 0.2% against the dollar. Unemployment rate in South Korea to its lowest level in record at 2.4% during August 2023 from 2.8% in the previous month despite the elevated interest rate level and moderating inflation.

MYR: The ringgit was opened at 4.677 but later was pressured by cautious mode in the market ahead of US CPI data overnight and amidst lack of fresh drive. The MYR ended the day 0.05% weaker to 4.681.

Other Markets

Gold: Gold Prices Fell Further by 0.3% as USD Strengthened and Following Higher Reading of US CPI. 

Crude Oil: Oil prices eased after hitting the 10-months high recently after data showed a surprise build of 4 million barrels US crude inventories last week, compared to analysts’ expectations of 1.9 million barrels drop. Brent dipped 0.2% while WTI shed 0.4%.

FBM KLCI: The KLCI ends the day higher by 0.01% to 1,454. Foreign investors sold a net amount of MYR70.2 million Malaysian shares.

US Equities: Wall Street was mixed after the US inflation data. Dow Jones fell 0.2%, but S&P 500 rose 0.1%, and Nasdaq climbed 0.3%.

Source: AmInvest Research - 14 Sept 2023