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Snapshot Summary…

Global FX: Dollar resumed its bullish run as it surge to near 107-level, pressuring other currencies at the same time

Global Rates: Cautious sentiment on higher-for-longer rates sent global yields higher

MYR Bonds: MGS/GII market was quiet as investors took to the sideline despite healthier volume traded in PDS market

USD/MYR: Ringgit depreciated, in line with regional currencies weaker performances

Macro News

United States : In September 2023, the ISM Manufacturing PMI in the US increased to 49, marking the slowest contraction in the manufacturing sector in ten months. New orders fell at a slower rate, leading to increased production and solid employment figures. Prices also declined for the fifth consecutive month, potentially improving manufacturers' margins.

Euro Area : The Euro Area seasonally-adjusted unemployment rate fell to a record low of 6.4% in August 2023, down from 6.5% in July. Germany had the lowest jobless rate at 3%, while Spain, Italy, and France reported higher rates. Youth unemployment also dropped to a record low of 13.8% in August.

United Kingdom : The S&P Global Malaysia Manufacturing PMI dropped to 46.8 in September 2023, the lowest since January and marking the 13th consecutive monthly decline in the manufacturing sector. New export orders shrank significantly, and employment continued to drop for the fifth consecutive month. Both output and new orders also slowed, and purchasing activity saw its most significant decline since September 2021. Backlogs of work decreased for the 16th straight month, and supplier performance improved slightly. Input cost inflation was low over the past three years, but charge inflation was the strongest in ten months.

Fixed Income

Global bonds: UST market started the month of October on weaker footing as yields climbed given that investors remained cautious for the key interest rates to stay higher for a longer. The Manufacturing PMI data by S&P Global was revised higher to 49.8 from 48.9 while ISM Manufacturing PMI improved to 49, surpassing the market’s expectations of 47.8 and the prior month’s reading of 47.6. On another note, Fed speak by Vice Chair Michael Barr and Chair Jerome Powell continue to highlight the need to control inflation. The cautious sentiment was reflected in Europe as Bund 10Y rose 8 bps while Gilt 10Y climbed 13 bps. On the data front, the Eurozone’s unemployment rate dipped lower to 6.4%, the lowest on record, while its Manufacturing PMI remained the same as its initial estimate of 43.4. This marked fifteenth straight months of sub- 50 reading, prompting concerns for the region’s economic outlook. The JGB 10Y yield was up 1 bps to 0.78% after the BoJ hinted for an eventual exit from the negative interest rate policy in its summary of opinions.

MYR Government Bonds: Ringgit bonds started the new month on defensive mode amid the weaker Ringgit and higher global bond yields. Trading activities were rather lukewarm, and sentiment remained cautious as market participants prefer to stay on the side-line as global bond yields continue to be under pressure as market repositioned to the US Fed’s higher for longer narrative.

MYR Corporate Bonds: In contrast, volume traded in the PDS market improved to RM607 million compared to last Friday’s RM467 million with gainers were seen outpacing losers. Among notable trades were RM200 million on 11/40 Danainfra (GG rated) done at 4.34%, RM 10 million on Amanat Lebuh Raya 10/26 (AAA rated) done at 4.05%, and RM10 million on 01/31 Sinar Kamiri (AA- rated) done at 5.33%.

Forex

US: The USD index continued to show strength, guided by outlook for higher rates. Fed chair Jerome Powell reiterated the Fed’s aim to fight inflation while the US government avoiding the shutdown further pushed the rates outlook and lifted the US dollar. The DXY rose 0.7% and closed at 106.90. Data released also worked in favour for the dollar as PMI reading showed improvement in US manufacturing industry.

Europe: Eurozone’s September Manufacturing PMI fell slightly to 43.4 from 43.5, though also expected. There were better September Manufacturing PMI readings for Spain (actual 47.7 vs prior 46.5), Italy (actual 46.8 vs prior 45.4), Germany (actual 39.6; vs prior 39.1), and the UK (actual 44.3 vs prior 43.0) though all remained in contraction. EUR/USD fell 0.9% overnight to settle at 1.048.

Asia-Pacific: JPY weakened on Monday, seen down 0.3% to end at 106.90 as the dollar strengthened after the US government shutdown was avoided. BoJ summary of opinions of its September meeting showed policymakers discussed an eventual exit from ultra-loose policy. Nevertheless, policymakers stressed the need to maintain easy monetary policy, suggesting that an end to its bond yield control and negative interest rate policy "must be tied to the success" of hitting the bank's 2% price target. The comments pushed up the 10Y JGB to 0.775%, a decade-high and close to the BOJ's 1.0% limit, and later prompting the bank to announce that it would conduct additional bond buying. The AUD was weaker after Chinese and Australian PMI’s weighed on the local currency. Due this week is RBA’s policy meeting where consensus is for the interest rate to remain unchanged at 4.10%. In China, the official Manufacturing PMI at 50.2 vs prior 49.7 meant a return into expansion territory. However, the Caixin Manufacturing at 50.6 is a decline from 51.0, and the Services reading at 50.2 also fell from prior reading of 51.8), pointing to slowing growth.

MYR: The ringgit weakened on Monday, down 0.5% to close at 4.717 moving with regional currencies against the firm US dollar. In turn, the dollar was in demand ahead of Fed chief Powell’s scheduled roundtable discussion after hours. Aside, data on Monday for Malaysia was S&P Global Market manufacturing PMI for September down to 46.8 from 47.8 in August. As we moved into 4Q2023 with the US Fed is getting more hawkish as implied by its September’s economic projection, the next resistance level is seen at 4.75 which is about the previous high seen in November 2022. The balance of risk to our 4.50 – 4.60 USD/MYR forecast is tilted to the upside.

Other Markets

Gold: Gold bullion remained dim as its price fell further as USD and Treasury yields climbed, dipping to USD1,828, its lowest level since last March.

Crude Oil: Oil prices struggled as the Brent benchmark tumbled sharply by 4.8% as the US dollar strength pressured sentiment. OPEC+ is scheduled to meet this midweek and it is expected to announce that output cuts will be maintained.

FBM KLCI: Local bourse’s fell on Monday by 0.4% to close at 1,419, in line with the slide in regional peers’ performance as market sentiment remained cautious. Foreign investors were net buyers of Malaysian stocks with RM20.6 million net flow.

US Equities: Wall Street closed mixed on Monday. Dow Jones fell 0.2% but S&P500 was steady at 4,288 while Dow Jones climbed 0.7%

Source: AmInvest Research - 3 Oct 2023