Snapshot Summary…

Global FX: Dollar continues to fall on trimmed expectations of further rate hike, benefitting other currencies

Global Rates: UST market rallied but shorter tenor saw weaknesses, reacting to the PPI data

MYR Bonds: The MGS market posted gains after prior day declines in UST rates though volume traded were relatively light

USD/MYR: The ringgit strengthened for the second day

Macro News

United States : Producer prices in the United States increased by 0.5% m/m in Oct 2023, marking the smallest rise in three months, following a 0.7% increase in August, which exceeded market expectations of 0.3%. This increase was mainly driven by a 0.9% rise in goods prices, particularly due to a significant 5.4% surge in gasoline costs. Prices also advanced for jet fuel, processed young chickens, meats, electric power, and diesel fuel, while fresh and dry vegetable costs decreased by 13.9%.

Japan: In October 2023, the Reuters Tankan sentiment index for manufacturers in Japan remained unchanged at +4, indicating a lack of improvement from the previous month. This stagnant sentiment is attributed to downside risks stemming from the global economy, which have eroded confidence in Japan's trade-dependent economy. The outlook is further dimmed by elevated costs of raw materials and increased oil prices, exacerbated by a weakened yen. A manager from an industrial ceramic maker highlighted the challenges, stating that business conditions are challenging due to disparities between those benefiting from the recovery in car production and those affected by China's broader economic slowdown.

China: China's vehicle sales in September 2023 experienced a notable increase, rising by 9.5% compared to the previous year. This marks the second consecutive month of growth, with the boost attributed to increased discounts and tax incentives for environmentally friendly and electric vehicles. Sales of energy vehicles, in particular, surged by 27.7%. Looking at the period from January to September, new vehicle sales in China expanded by 8.2%, a notable improvement compared to the 4.4% increase recorded during the same period in 2022. Energy vehicle sales saw a significant increase of 37.5% during this nine-month timeframe.

Fixed Income

Global bonds: UST curve especially the longer tenors continued to rally but short ends closed slightly weaker. The 10Y UST shed 9 bps overnight while the longer term bond 30Y was 10 bps lower. Short part of the curve reacted to the September Producer Price Index rose 0.5% m/m vs consensus 0.3% and a 0.7% increase in August. The market did not react to the FOMC Minutes indicating a majority of policymakers judging one more rate hike would likely be appropriate. Bunds also stronger alongside the UST move. ECB member Knot mentioned waning inflation shocks, though also mentioning the ECB is ready to act to achieve the 2% inflation target.

MYR Government Bonds: The MGS market posted gains after the prior day declines in UST rates though volume traded was relatively light. Meanwhile, rangebound ringgit aided in fresh interest for bonds. There was also continued caution ahead of Malaysian budget announcement come Friday.

MYR Corporate Bonds: There was mixed trading of Malaysian corporate bonds yesterday. There was interest for credits alongside gains in the MGS space, but overall cautious mood still prevailed due to risk aversion. Heavier trades done yesterday include 10/26 UMWH (AA+) at 4.15% on MYR40 million volume and 04/43 Danainfra (GG) at 4.56% on MYR30 million volume. undefined

Forex

US: The DXY index little changed and ended the day slightly lower at 105.82 following the release of FOMC minutes which was essentially in-line with market expectations; the interest rate will be maintained at a restrictive level for quite some time and, policymakers will remain data-dependent in deciding the next move during November’s meeting. Furthermore, the dollar rose after the PPI data but gave up the gains later. While the headline PPI grew faster in tandem with the recent surge in oil prices, core PPI remained moderate at 0.2% m/m, the same pace as its prior month and market forecast. Fed speeches by Christopher Waller and Raphael Bostic both communicated that the Fed may not need to raise interest rates further from now on, in tandem with recent similar tone by other Fed officials.

Europe: The EUR rose 0.1%. Germany’s inflation was confirmed at 0.3% m/m for September 2023, unchanged from its preliminary estimate and the same pace with previous month’s reading. The GBP was also on the upside as the dollar weakened.

Asia-Pacific: The Japanese yen weakened by 0.3% after data showed Japan’s machine tool orders contracted by 11.2% y/y in September 2023 after 17.6% decline in the prior month. The still positive Reuters Tankan sentiment index for manufacturers provided some support for the yen. In China, the yuan did not take advantage from the lower USD as it depreciated 0.1%. The IMF has cut China’s GDP growth forecast to 5.3%, lower than previous estimate of 5.5% as the country is facing headwinds from its real estate crisis and weakening confidence.

MYR: The ringgit strengthened for the second straight days and closed out at 4.716, retreating from its weakest level in months reached recently. The currency traded with a high of 4.730 and low of 4.716. Market players will be looking at industrial production due to be released today with an expectation of 1.2% y/y decline in August 2023 after 0.7% growth in the prior month.

Other Markets

Gold: Gold prices rose as bond yields and USD fell on pared expectations of further rate hike. It rose 0.8% to USD1,874/oz.

Crude Oil: Oil prices dropped with Brent falling 2.1% and WTI tumbling 2.9% as supply worries on Middle-East conflict alleviated after Arab Saudi pledged to help stabilise the market.

FBM KLCI: Local bourse continue to rise at 0.1% to 1,436. Foreign investors were the net sellers with RM49.0 million outflow.

US Equities: Wall Street closed in the green again as the Dow Jones rose 0.2%, S&P500 climbed 0.4%, and Nasdaq climbed 0.7%.

Source: AmInvest Research - 12 Oct 2023