Snapshot Summary…

Global FX: Dollar fell to below 106-level while other major currencies firmed

Global Rates: UST market rallied on safe-haven bid and signs of bargain hunting

MYR Bonds: Activities in the MGS was lacklustre as players took a wait-and-see stance in view of ongoing global development

USD/MYR: The ringgit strengthened amidst mixed performance in regional currencies

Macro News

Global : The International Monetary Fund (IMF) has reduced its growth projections for both China and the Euro Area in their latest October 2023 forecast. Despite the "remarkable strength" of the US economy, the IMF stated that global growth remains low and uneven. In its latest World Economic Outlook (WEO), the IMF maintained its forecast for global real GDP growth in 2023 at 3.0% but lowered its 2024 forecast by 0.1 percentage point to 2.9% compared to the previous July prediction. While the global economy is recovering from the COVID-19 pandemic, Russia's invasion of Ukraine, and last year's energy crisis, the IMF noted increasing divergence in growth trends across the world, and it expressed concerns about mediocre prospects for medium-term growth.

United States: The consumer inflation expectations for the year ahead rose to 3.7% for September 2023, reaching their highest level in three months, up from 3.6% in August 2023. This increase was primarily driven by higher price growth expectations for food, which saw a 0.3 percentage point increase to 5.6%.

Australia: The Westpac-Melbourne Institute Consumer Sentiment index in Australia increased by 2.9% to reach a level of 82 in October 2023, marking its highest point in six months. While there are some slight improvements in sentiment regarding family finances and job outlook, these positive aspects are overshadowed by concerns about persistently high inflation and worries about potential interest rate hikes.

Malaysia: Malaysia's unemployment rate remained at 3.4% in August 2023. The number of unemployed individuals decreased by 8.9% compared to the previous year, totalling 557.3 thousand, while employment increased by 2.1% to reach 16.35 million. Additionally, the labour force participation rate edged higher to 70.1% in August, up from 69.7% in the same month the previous year. In July, the jobless rate stood at 3.4%, remaining consistent with the August figure.

Fixed Income

Global bonds: US Treasuries rallied overnight. The 10Y UST shed 15 bps to 4.65%. Directing the flows into the UST include safe haven demand due to the current Middle East conflict, as well as some sign of bargain hunting after the recent market slump. The declines in crude oil price overnight also supported UST trading. UK gilt yields also fell but we noted BoE member Catherine Mann maintained an aggressive stance on monetary policy to prevent inflation.

MYR Government Bonds: Action in the MGS was lacklustre yesterday as players took a wait-and-see stance in view of ongoing global development as well as upcoming Malaysia Budget announcement this week. Bond yields rose by 1 bps around 10Y part of the curve following the announcement of reopening auction for 10Y MGIl with a larger-than-expected auction size of MYR5.5 billion.

MYR Corporate Bonds: Malaysian corporate bonds weakened yesterday as investors became cautious amidst the geopolitical risks. There’s also some caution ahead of the Budget speech later this week. Traded volume was lower at MYR700 million. Flows were led by 06/25 Danum (AAA) which closed steady at 3.88%, and another short tenor paper 11/26 YTL Corp (AA1) which shed 8 bps at 4.25%. Longer tenor 08/37 Tenaga (AAA) rose 23 bps to close weaker at 4.50%.

Forex

US: The USD lost ground as it shed 0.2% to close at 105.83. It reacted to the sharp drop in UST yields as Fed speech pointed towards the dovish side. Atlanta Fed President Raphael Bostic said that the US Fed does not need to increase interest rate any further as the current level is already sufficiently restrictive. Also, investors were on the side-line ahead of US inflation data due to be released on Thursday. Expectations are that September’s headline inflation to slow to 0.3% m/m from 0.6% m/m in the prior month.

Europe: Both the EUR and the GBP climbed 0.4% against weaker dollar. The IMF had revised GDP projections for Eurozone lower to 0.7% in 2023 and 1.2% in 2024 (prior forecast; 0.9% and 1.5%). The larger gain in employment supports growth in the region, but greater exposure towards Ukraine-Russia war and spike in commodity prices weigh on the economy. In the UK, the IMF argued that the BoE may need to raise interest rates further at least one more time and keep them there throughout 2024 as inflation remained persistent.

Asia-Pacific: The CNY was set at 7.1781 prior to the market opening, which was 8 pips firmer than the previous fix. By the end of the day, the yuan was held steady at 7.294, benefitting from the lower USD. According to Bloomberg, China is mulling to raise its budget deficit above 3.0% which was projected earlier in March 2023 to provide another round of stimulus in propping the economy achieving growth target. The official announcement may come as early as this month though the plan could change. While the news flow appear growth positive, we are of the view that it may put further pressure on yuan amidst elevated global interest rate. In Japan, the JPY rose initially after report showed that the BoJ is considering revising its core inflation forecast higher from 2.5% to 3.0% for its current business year up to March. However, the JPY lost its ground and closed the day weakened 0.1% to 148.71.

MYR: Amidst mixed regional currencies performances, the USD/MYR fell 0.1% to settle at 4.728 and traded within the range of 4.718 and 4.737. Malaysia’s steady unemployment rate highlights the bright prospect of local consumer spending.

Other Markets

Gold: Gold prices fell slightly by 0.1% despite the lower dollar as risk appetite improved.

Crude Oil: Oil prices fell as the market was mulls over the impact of recent MiddleEast conflict on the supply of oil. Brent fell 0.6% while WTI dipped 0.5%.

FBM KLCI: Local bourse surged 1.3% to 1,435, benefitting from the risk on mode. Foreign investors were the net buyers with MYR66.7 million inflow.

US Equities: Wall Street closed higher as the Dow Jones rose 0.4%, S&P500 climbed 0.5%, and Nasdaq climbed 0.6%.

Source: AmInvest Research - 11 Oct 2023