Snapshot Summary…

Global FX: DXY Index Pares Previous Gains as UoM Consumer Sentiment Falls

Global Rates: Both Bund and Gilt Markets Close Weaker, in Tandem With Bearish UST

MYR Bonds: Govvies Space Was Relatively Quiet Despite Heavy Volume Traded in PDS Market

USD/MYR: The Ringgit snaps its three back-to-back days of bearish run amidst spill over effects of positive news in China.

Macro News

United States: The University of Michigan's US consumer sentiment index dropped to 67.7 in September 2023, down from 69.5 in the previous month. This decline reflects reduced optimism which aligns with other indicators that shows a less robust economic outlook. The gauge for current economic conditions also fell significantly, driven by rising food and fuel prices. However, consumers' future expectations improved slightly, supported by the belief that high inflation will ease. Year-ahead inflation expectations decreased to 3.1%, the lowest since March 2021.

China: China's industrial production showed strong growth, increasing by 4.5% y/y in August, surpassing expectations and marking the fastest expansion since April. This growth was driven by increased in manufacturing activity and various sectors, including chemicals, vehicles, and electronics. Over the first eight months of 2023, industrial output grew by 3.9%, reflecting ongoing support measures aimed at boosting economic recovery.

Fixed Income

Global bonds: UST closed on weak footing and sustained its losses for the week. The 10Y UST rose 5 bps to 4.33% on Friday or up 7 bps for the week. UST sustained its cautious trading on Friday as we move on to the coming week’s FOMC meeting. Though futures trading is not pricing another Fed hike in the coming week, with probability for November and December Fed 25 bps hike of 29.9% and 34.1% respectively. Thus, latest Fed’s economic projections including dot plots to be released this week and accompanying policy statement will be closely read.

MYR Government Bonds: MGS market was relatively quiet last Friday with some net selling seen on long dated off-the-run papers amid cautious sentiment after losses in UST the day before. The 10Y MGS closed at 3.88%.

MYR Corporate Bonds: More mixed movement in the PDS market to end the week. Investors were lacking interest after recent couple of weeks’ mostly net buying interest. Traded volume in the PDS market was heavy at MYR718 million. Notable trades include AA1 YTL Power 08/38 at 4.47% (MYR30 million) and AA SP Setia 06/28 at 4.17% (MYR20 million).

Forex

US: The dollar showed mild weakness on Friday, but the DXY index still closed firmly above 105 at 105.33 or up 0.2% w/w. Confidence in dollar was sustained ahead of Fed meeting this week and alongside global risks to growth, i.e., dollar was aided by safe haven interest. At the same time, last week’s data such as generally in line US CPI and firm US retail sales data, which reflects firm US economic outlook, ensured a cautious mode few days before FOMC meeting. However, USD weekly gains were pared Friday after the University of Michigan's preliminary Consumer Sentiment Index fell to 67.7 in September from a final reading of 69.5 in August.

Europe: The EUR rebounded on Friday but remained weak w/w. Post ECB rate hike, the EUR/USD was up 0.2% Friday, after reaching below 1.060. Traders digested ECB policymakers’ comments that current interest rate level, if kept high for a sustained period, will help ECB hit its long term inflation target. EUR/USD closed Friday at 1.066. Ahead of BoE meeting this week, GBP remained on weak footing. Friday saw GBP/USD down 0.2% as traders noted UK’s growth risk after last week’s soft GDP data. UK CPI for August is due to be released this week, where the market is looking at 7.1% y/y inflation rate reading for August, compared to July’s 6.8% y/y.

Asia-Pacific: Despite firm USD, CNY was supported last Friday by PBoC policy measures as well as the releases of firm economic data including industrial production at +4.5% y/y in August, vs +3.7% in July. China’s retail sales were +4.6% y/y in August vs July’s +2.5% and +3.5% consensus expectations. USD/JPY closed out last week at 147.85 and was up 0.3% from Thursday. Previous weekend remarks by BoJ Chief, Kazuo Ueda, raised hopes that they could see the end of negative interest rate era as soon as 2024. But economic data released may challenge the plan as Japan reported its 2Q2023 GDP grew by 1.2% q/q (consensus: 1.5%; 1Q2023: 0.8%), and by 4.8% y/y (consensus: 6.0%; 1Q2023: 3.2%). Cash earnings in Japan also grew slower at 1.3% y/y in July 2023, down from 2.3% y/y in the prior month.

MYR: The ringgit closed slightly firmer against the USD, snapping three consecutive days of bearish run, after upbeat China data which also aided sentiment in other regional currencies. However, USD/MYR remain higher w/w after most of past week saw risk appetite were generally absent. USD/MYR closed Friday at 4.683 and was up 0.1% w/w.

Other Markets

Gold: Gold prices rose Friday after a weak performance the day before. Anticipation of Fed maintaining FFR in coming week aided interest in gold as this could spur support on short term US interest rate and global growth outlook.

Crude Oil: Oil prices rose to 10-month highs as sentiment remained boosted by low output expectations but also by some optimism for China’s demand after PBoC stepped in with policy support and after positive news from Chinese data released on Friday. Brent rose 0.2% to close Friday at USD93 per barrel.

FBM KLCI: The KLCI ends the day with another round of gains, aided by modest improvement in regional risk appetite after release of upbeat China economic data. FBM KLCI rose 0.7% Friday. Foreign investors were net buyers of Malaysian stock with RM184.1 million flow.

US Equities: Wall Street closed weak on Friday with the Dow and S&P indices down >1%. Losses in tech stocks led the declines with Apple shares fell on news Huawei raised phone sales targets and TSMC asked for delays in shipments from vendors of chipmaking equipment.

Source: AmInvest Research - 18 Sept 2023