Snapshot Summary…

Global FX: The USD and JPY strengthened on fresh geopolitical risk

Global Rates: UST market was closed for holiday, German Bunds rallied overnight

MYR Bonds: Malaysian government bonds reported gains while volume traded in the PDS market started the week on heavy MYR900 million

USD/MYR: The ringgit closed weaker following the surprise NFP data last week while escalated geopolitical risk sustained demand for the USD

Macro News

United States : Two Federal Reserve officials have indicated that the central bank might not raise interest rates at its upcoming meeting in three weeks. This decision is driven by the recent surge in long-term interest rates, which has increased borrowing costs significantly and could potentially help control inflation without the need for further Fed action.

Malaysia: The Public Finance and Fiscal Responsibility Bill (RUU) 2023 had its first reading in Dewan Rakyat, presented by Deputy Finance Minister I. The second reading is also scheduled for this session. This bill is designed to establish provisions for the government's responsibility, accountability, governance, and transparency in handling public finances and fiscal risks, including aspects related to revenue, expenditure, loans, and debt. It was reported earlier this year that the Fiscal Responsibility Act will include factors such as capping the sovereign debt-to-GDP ratio at 65% and debt service charges at 15% of annual revenue.

Malaysia: The Employee Provident Fund (EPF) is looking into restructuring the members’ account to introduce a new mechanism for saving and withdrawal. Meanwhile, it was also reported that only 16.4% of EPF members aged 50 to 54 years have savings of more than RM240,000.

Malaysia: Bank Negara Malaysia (BNM) in its 1H2023 Financial Stability Review said domestic business activity has improved considerably but recovery remains uneven. Meanwhile, the domestic banking system maintained strong liquidity buffers with liquidity coverage ratio of 154.4% and remained well-capitalised with a total capital ratio of 18.5%.

Fixed Income

Global bonds: UST market was closed for the US holiday on Monday, but UST futures prices were seen higher. US long bond Dec 23 contract (underlying 20Y) rose to above 112 from just over 110 last Friday. Germany's bonds strengthened overnight with yields coming down further from 12-year highs seen last week, as safe haven demand picked up due to the middle east geopolitical risks. Aside, interest rate risks in the euro zone had a minor effect on yields, after ECB vice president Luis de Guindos said inflation is expected to continue to fall but there should be caution as crude oil prices rise due to the fresh geopolitical risks. Meanwhile, gilt yields also fell, seen down 10 bps overnight.

MYR Government Bonds: Even though the ringgit weakened amid dollar strength due to safe haven demand amid geopolitical tensions, Malaysian government bonds reported gains due to suspected bargain hunting interest following last week’s losses. Benchmark MGS fell 1-5 bps.

MYR Corporate Bonds: Malaysian corporate bonds reported a second day of mostly net buying interest, after the net selling done last week. Traded volume was also heavy, totalling MYR929 million. The heavier traded paper includes 06/25 Danum (AAA) at 3.88%, quasi papers 10/38 LPPSA at 4.43% and 10/37 Danainfra at 4.37%.

Forex

US: The DXY index started the week on a better note as it strengthened above 106- level. Safe haven demand supported the dollar on the surfacing Middle-East conflicts. Fed Speech by Dallas President Lorie Logan (voting member) and Vice Chair Philip Jefferson sounded slightly dovish. The former argued that the recent surge in longterm Treasury yields may mean that the less need for the US Fed to raise FFR again while the latter said that officials are in a position to carefully assess the “extent of any additional policy firming”.

Europe: The EUR fell 0.2% to close out Monday at 1.057 against a stronger USD. The currency also was weighed by the larger-than-expected contractions in Germany’s industrial production; August reading of -0.2% m/m vs. consensus -0.1% m/m. Although, hawkish comment by ECB Vice President Guindos helped limit the losses. The GBP found some supports as it settled 0.1% higher to 1.224. BoE’s Catherine Mann raised concerns that the current prolonged period of elevated inflation could nudge expectations of future price increases, warranting an “aggressive” policy approach to bring the inflation down, building the case for further rate hike.

Asia-Pacific: Another traditional safe-haven currency, the Japanese yen, was also on the upside as it strengthened 0.5% due to the Middle-East conflicts. In China, the yuan held its ground after markets reopened post week-long holiday. Prior to the market opening, the PBoC set the midpoint rate at 7.1789, 1,156 pips firmer than Reuters estimate of 7.2945. By the end of the session, the CNY firmed 0.1% to close at 7.293.

MYR: Despite the firmer yuan, the ringgit depreciated by 0.4 to settle at 4.732. It traded within the range of 4.710 - 4.734 as the lingering sentiment from stronger-thanexpected non-farm payrolls data and risk-off mode due to geopolitical events pressured the EM FX space, the ringgit included.

Other Markets

Gold: Gold prices also rallied, spotted up by 1.5% overnight supported by safe haven demand amid the global volatility - where the VIX index rose to 17.7 after falling to 17.45 last Friday.

Crude Oil: Military clashes between Israel and Palestinian Hamas sparked the fear of further tightening of oil supply. Brent surged 4.2% to USD88 per barrel while WTI surged 4.3%.

FBM KLCI: The local bourses closed marginally higher by 0.03%. Foreign investors were net sellers of Malaysian shares with RM107.2 million flow.

US Equities: Wall Street closed in green, recouping losses from the early session. The Dow Jones and S&P500 rose 0.6% and the Nasdaq climbed 0.4%.

Source: AmInvest Research - 10 Oct 2023