Snapshot Summary…

Global FX: The stronger than expected August PPI and retail sales helped the DXY index gaining more than 0.5%

Global Rates: Treasuries Posted Losses in Reaction to the Robust US Macro Data

MYR Bonds: Malaysian government bonds were in a tight range post US CPI release and ahead of ECB meeting

USD/MYR: The Ringgit Continued Its Bearish Run, in Tandem With Weaker CNY

Macro News

United States: Retail sales in the US increased by 0.6% in August 2023, surpassing expectations and indicating strong consumer spending despite rising prices and borrowing costs. The largest increase was in sales at gasoline stations, up 5.2% due to surge in gasoline prices. Other sectors that saw growth included clothing stores, electronics, health and personal care, food, and beverage, and more. However, sales declined in sectors like sporting goods, miscellaneous stores, and furniture stores.

Euro Area: The ECB raised interest rates for the 10th consecutive time, with the main refinancing operations rate reaching a 22-year high of 4.50% and the deposit facility rate setting a new record at 4.00%. Despite this, the ECB signalled policy tightening may be over, as inflation, while expected to decline, is projected to remain high for some time. The September ECB staff projections anticipate average inflation of 5.6% in 2023 and 3.2% in 2024, both higher than previous estimates, largely due to elevated energy prices. However, the 2025 inflation rate projection has been reduced to 2.1%.

China: The People's Bank of China has reduced the reserve requirement ratio (RRR) for most banks by 25 basis points. This move aims to support government efforts to stimulate the slowing Chinese economy by providing banks with more liquidity for lending. After this reduction, the weighted average RRR for banks will be 7.40%.

Fixed Income

Global bonds: Treasuries posted losses in reaction to data, led by higher-thanexpected PPI, better-than-expected August retail sales (0.7% vs consensus 0.2%), and a smaller than expected increase in weekly jobless claims (220K vs consensus 226k). Meanwhile, the PBoC cut the reserve requirement ratio by 25 bps while the ECB announced its 10th consecutive rate hike. However, the ECB sent signal of an end to hikes, saying “interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”.

MYR Government Bonds: Benchmark Malaysian government bonds closed in a tight range yesterday after prior day’s release of US CPI which met expectations. Ahead of FOMC next week and this week’s ECB policy meeting, MGS papers saw little support. Traded volume was MYR905 million vs MYR2.6 billion the day before. The 10Y MGS closed unchanged at 3.88%.

MYR Corporate Bonds: Malaysia’s corporate bonds closed mixed yesterday after recent couple of weeks’ of mostly net buying interest in the hunt for yield pickup. However, traded volume in the PDS market was heavy at MYR1.0 billion yesterday. Leading the activity was GG papers DanaInfra and Prasarana, including Prasa 08/42 at 4.27% and for non-GGs were couple of AA rated SP Setia papers, maturing 06/28 and 06/30 which realigned at 4.18% (-23 bps) and 4.30% (-1 bp) respectively.

Forex

US: The stronger than expected August producer inflation and retail sales data, which helped build the case for the US Fed to continue tighten its monetary policy, helped the DXY index gaining by more than 0.5% to close at 105.41. Also supporting the dollar was the lower than forecasted initial jobless claims at 220K last week compared to 225K in the prior week. Nonetheless, core PPI grew only by 0.2% m/m (vs. July 0.4% m/m) while retail sales excluding gas and autos rose 0.2% m/m (vs. July 0.7% m/m). Headline PPI for August was 0.7% m/m vs 0.3% prior month.

Europe: In Europe, the ECB defied market expectations and raised its key interest rate by 25 bps across the board, bringing the main refinancing, deposit facility, and marginal lending rate to 4.50%, 4.00%, and 4.75%, respectively. Nonetheless, investors deemed it to be the last hike of current cycle as the central bank stated in its press release that current level if “maintained for a sufficiently long duration, will make a substantial contribution” to its inflation fighting quest. As a result, the EUR tumbled 0.8% to 1.064. In the meantime, the sterling fell 0.6% to 1.241 on lingering sentiment from larger contractions in GDP and firmer USD.

Asia-Pacific: The PBoC in the meantime, announced cut in the RRR by 25 bps effective today (15th September) to prop up economic growth prospects postpandemic. The weighted average RRR for banks will be 7.4% after the reduction. Yuan ended the day 0.1% weaker and closed at 7.279. The JPY was relatively unchanged at 147.47 as traders continue to watch out for any yen intervention by authorities and following the signal by BoJ Chief Kazuo Ueda of a potential shift on its negative rate policy stance. But weaker core machinery orders in August, which declined by 1.1% m/m after 2.7% growth in the prior month, could pose challenge for BoJ’s plan. Aussie dollar managed to post decent gains of 0.3% to settle the day at 0.644 data showed Australia’s labour market remained tight. The number of people employed surged 64.9K in August 2023, beating market expectations of 23K increase.

MYR: The Ringgit continued its bearish run for the third day, losing 0.1% to close near its intraday high level at 4.684, in tandem with weaker CNY. USD/MYR may see volatile session today after USD gained overnight due to robust US economic data.

Other Markets

Gold: Gold prices rose 0.1% to close at USD1,911/oz but remain near three-weeks low as US retail sales and PPI data prompt the worries on higher-for-longer Fed rate hiking cycle.

Crude Oil: Oil prices climbed to their highest level in 2023, benefitting from tight supply expectations. Brent jumped 2.0% to USD93 per barrel while WTI rose 1.9% to USD90 per barrel.

FBM KLCI: The KLCI fell by 3.96 points, or 0.27%, to 1,449.58, though after hitting an intraday high of 1,455.09, in a signal of profit taking activity amid a generally positive trading session. Foreign investors bought a net amount of MYR64.5 million Malaysian shares.

US Equities: Wall Street closed in the green as healthy retail sales data underpins healthy economy. Dow Jones climbed 1.0%, S&P500 rose 0.8% and Nasdaq gained 0.8%.

Source: AmInvest Research - 15 Sept 2023