Snapshot Summary…

Global FX: The USD fell on profit-taking following mixed labour market data

Global Rates: UST market saw another round of selling pressure while Bund closed mixed

MYR Bonds: Gainers outpaced losers in the MGS market

USD/MYR: The ringgit closed firmer, benefitting from the falling dollar

Macro News

United States : The non-farm payroll came in at 336K in September compared to 227K in August and was well above 170K expected. The unemployment rate held steady at 3.8% in September 2023, remaining unchanged from the previous month and slightly above market expectations of 3.7%. The number of unemployed individuals remained largely stable at 6.36 million people. Additionally, the U-6 unemployment rate, which includes those who have given up job searching and part-time workers seeking fulltime employment, inched lower to 7.0%, down from a 15-month high of 7.1% in August.

Australia: Retail sales in Australia showed a modest 0.2% m/m increase in August 2023, unchanged from the initial estimate and following a 0.5% gain in July. This marks the second consecutive month of retail trade growth, suggesting that consumers are cautious with their spending due to elevated interest rates.

Fixed Income

Global bonds: Another round of selling pressure was triggered in the UST market post mixed labour market data releases. US non-farm payrolls saw an addition of 336K payrolls in September 2023, much larger than market forecast of 170K and prior month’s reading of 227K. On the other hand, the unemployment rate was steady at 3.8% (cons.: 3.7%) while average hourly earnings growth was at 0.2% m/m (cons.: 0.3% m/m). UST yield curve rose by 6 – 9 bps across tenors. At the same time, Bund yields steepened with tenors 2Y – 7Y fell and longer tenors climbed. Factory orders in German unexpectedly grew 3.9% m/m in August (cons.: +1.8% m/m). ECB board member Isabel Schnabel said she still sees upside risks to inflation and thus will not rule out additional interest rate hikes. In Japan, the JGB rallied slightly though yields remained a decade high despite recent bond buying exercise by the BoJ.

MYR Government Bonds: In the local bond space, gainers outpaced losers with MGS yields down by 2 – 5 bps along the 5Y to 10Y tenors. Prior day’s gains in the UST market, after yields had touched almost two-decade highs supported the MGS gains, also saw relatively heavy flows along shorter to medium tenor papers. However, we are cautious of MGS movement for the coming week, seeing last Friday’s UST losses on the back of strong NFP data.

MYR Corporate Bonds: Ringgit credits posted mixed performances. Trading volume ended the week on a better note at MYR527 million compared to MYR356 million the day before. Among notable trades were MYR40 million on 01/27 PLUS (AAA) done at 4.14%, and MYR40 million on 12/24 AZRB Cap (AA1 rated) done at 4.89%.

Forex

US: On Friday, the US dollar fell further from recent highs. Even though the strong NFP data sustained the interest rate outlook whilst they lifted UST yields further, but stable unemployment rate and wage growth provided a rather mixed picture. The DXY index fell 0.3% to close the day at 106.03. In any case, the USD is down 0.1% w/w which could’ve been partly due to profit taking ahead of the NFP release. The Relative Strength Index is showing the DXY index had already crossed the overbought level when it reached 107-level last Tuesday.

Europe: The euro rose on Friday, rebounding from its 10-month low. Expectations of ECB hikes aided the firm euro which rose 0.3% on Friday to close at 106.04. Friday saw ECB member Isabel Schnabel indicating potential for a rate hike, after another member, Peter Kazimir said incoming data will be scrutinised. The GBP was on the upside as well, gaining 0.4% against the USD. BoE Deputy Governor Ben Broadbent provided some dovish remarks as he warned that there are “clear signs” that the high interest rates effects are pressuring the UK economy and causing unemployment to pick up. He also stated spending on consumer durable goods and housing investment have weakened considerably.

Asia-Pacific: Ahead of the NPF last Friday, USD/JPY rose above the 149 level. Sentiment in global markets were cautious ahead of the NFP. There was weak data in Japan on Friday where household spending fell 2.5% m/m in August. However, the number beat expectations of a 4.3% decline and was also smaller than the 5.0% decline in July. The average cash earnings grew only by 1.1% y/y, the same pace as the previous month and falling short from market forecast of 1.5% y/y. If this trend continues, it could pose challenge on BoJ”s plan to rollback its ultra-accommodative policy. By the end of the session, the JPY weakened 0.5% to close at 149.32. The AUD/USD rose 0.3% to 0.639. The RBA’s Financial Stability Assessment report indicated that global financial stability risks are elevated, posing risks to macroeconomic conditions.

MYR: Yields in global bond markets posted a retreat from recent highs in the previous session while a dip in the US dollar on Friday aided regional currencies including the ringgit. USD/MYR fell 0.3% to 4.710 as technical indicator pointed to overbought USD position.

Other Markets

Gold: Gold fell.1% to USD1,820 per oz, possibly due to profit taking activity but release of strong NFP could have provided support against further declines on Friday, in our opinion.

Crude Oil: Oil rose on Friday but remained weaker on a weekly basis. For the week, Brent fell about 11% and WTI by more than 8%, on concerns that high interest rates will dampen demand. Russia lifted its diesel exports ban which are delivered to ports by pipeline. Companies still must sell at least 50% of their diesel production to the domestic market.

FBM KLCI: Similar to the ringgit, Malaysia’s equities also closed firmer alongside regional markets. The FBM KLCI edged up 0.1% to close at 1,417.

US Equities: Strong showing by US stocks were seen on Friday. The Dow index fell 0.9%, and the S&P 500 rose 1.2%.

Source: AmInvest Research - 9 Oct 2023