Snapshot Summary…

Global FX: The US dollar remained near recent highs while the pound fell as the Bank of England held its benchmark interest rate unchanged

Global Rates: Yields Continued to Rise Post FOMC

MYR Bonds: Malaysia’s government bond market fell with losses slanted along longer tenor papers to follow the rise in UST yields

USD/MYR: MYR Fell in Tandem With Regional Currencies Vis-à-vis the Strong Dollar

Macro News

United States: Existing-home sales in the United States decreased by 0.7% in August 2023 compared to the previous month, reaching an annualised rate of 4.04 million units. The decline is attributed to high mortgage rates and housing prices. Single-family home sales dropped by 1.4% to 3.60 million units, while existing condominium and coop sales increased by 4.8% to 440,000 units. Housing inventory at the end of August stood at 1.1 million units, down 0.9% from July, with a 3.3-month supply at the current sales pace. The median price for existing homes of all types was $407,100, marking a 3.9% increase from August 2022.

United Kingdom: The Bank of England decided to keep its policy interest rate at 5.25%, marking the first pause in policy tightening in nearly two years, following several rate hikes. The decision came after reviewing the inflation and labour data, which suggested that previous rate hikes might have an impact. The central bank voted 5-4 in favour of holding rates steady, with four members wanting an additional 25 bps increase. The bank expects a decline in CPI inflation in the near term due to lower energy prices, despite rising oil prices, and decreases in food and core goods prices. The bank remains committed to further tightening if necessary.

Fixed Income

Global bonds: As investors continue to digest information from the Fed meeting, UST yield curve closed mixed and steepened as the 2Y fell 3 bps to 5.14%, but remained near its highest level since 2006, while the 10Y climbed 9 bps to close at 4.49%, carving out a new 16-years high. On the data front, the initial numbers on unemployment benefits claims dropped to 201K last week, down from 221K in the previous week and much lower than market consensus of 225K. It underpins the resiliency in the labour market and supports the case for US Fed to remain hawkish. At the same time, Bund market saw weaker performance as well, especially on the longer tenure part of the curve. ECB Chief Economist, Philip Lane stated that labour market in the region has started to soften, and firms are absorbing wage pressures, a sign of subsiding wage-driven inflationary pressure. The Gilt market saw bearish movement as well after the BoE paused hiking rates at 5.25% vs. a widely expected 25 bps hike to 5.50% as policymakers decided for a wait-and-see approach.

MYR Government Bonds: Local government bond market was traded weaker yesterday with losses slanted along longer tenor papers (>10Y) as sentiment in the local market followed the overnight rise in UST yields. The 10Y MGS rose 5 bps to 3.98%. Meanwhile, reopening auction for MGS 03/53 closed with BTC of 1.897x on MYR3.5 billion public tender size and another MYR1.5 billion in private placement. Post auction, the stock was traded near auction average of 4.454% alongside the weak sentiment in the secondary market.

MYR Corporate Bonds: Volume traded in the PDS market rose slightly to MYR286 million from MYR279 million in the prior session. Overall sentiment was weak, and PDS traded yesterday mostly saw yield levels moving mixed. Among notable trades were MYR40 million dealt on AA1 rated Maybank IMTN 10/30 at 4.01% (+2 bps), AAA rated PLUS maturing 01/28 unchanged at 4.00% on MYR40 million traded, and short tenor AA-flat SP Setia 06/26 at 4.06% (-2 bps).

Forex

US: The US dollar reversed its strength after the boost from the FOMC meeting but remained near its 6-month high. The dollar index pared gains in tandem with a stronger yen ahead of today’s BoJ policy meeting. Data release was supportive of USD with initial jobless claims for the week ending 16 September fell 20K to 201K and hitting their lowest level since January. Continuing jobless claims for the week ended 9 September fell 21K to 1.662 million.

Europe: The BoE voted by a 5-4 margin to keep its key interest rate unchanged at 5.25%, surprising the market and causing GBP to fall as markets had expected a 25 bps increase. Markets could now be divided about whether the BOE will raise rates again later this year though inflation remains high. EUR/USD fell intraday to 1.0617, its lowest since March, but reversed weakness to close steady as UST yields retreated from daily highs after an unexpected fall in US jobless claims numbers.

Asia-Pacific: The Chinese yuan was pressured by the post-FOMC dollar strength. USD/CNY was seen at 7.306 yesterday, up 0.3%. Meanwhile, USD/JPY rose to a 10- month high as the market awaits the BoJ policy meeting on Friday where expectations is for the central bank to stand pat on rates. There is expectation for BoJ’s Ueda to signal a hawkish outlook, but the strong dollar meant JPY continued to move on weak footing yesterday.

MYR: The ringgit closed weaker yesterday; the USD/MYR pair rose 0.1% to close at 4.693. MYR fell in tandem with regional currencies vis-à-vis the strong dollar (DXY seen near 105.65 in Asian trading yesterday) on the back of the Fed statements the night before.

Other Markets

Gold: Fell on Thursday in its largest drop in nearly two months as a surging US dollar weighed on precious metals.

Crude Oil: Crude oil prices fell amidst a firm US dollar and some worries over short term demand after the hawkish comments by FOMC this week. However Crude prices found support after Russia said it would ban gasoline and diesel exports. News reports suggest the ban will cut about 1 million bpd of fuel supplies, or about 3.4% of total global demand.

FBM KLCI: Shares on Bursa Malaysia were pressured alongside regional markets as sentiment was affected by overnight hawkish stance by the Fed. The FBM KLCI fell 0.2% to close at 1,448.21. However, foreign investors were net buyers of MYR48.9 million shares. Meanwhile, fell with the STI index down 1.2%, JCI down by 0.3% and SET index by 1.7%.

US Equities: US equities were pressured lower overnight as sentiment was affected by the hawkish Fed tone. The S&P 500 fell 1.6% on Thursday.

Source: AmInvest Research - 22 Sept 2023