Snapshot Summary…

Global FX: The dollar index rebounded from three-weeks low after data showed US inflation was steady in September

Global Rates: US CPI remaining at steady pace sent bond markets lower overnight

MYR Bonds: The MGS market posted gains amid late demand support at latest GII auction

USD/MYR: MYR was up 0.1%, taking cue from the lower USD the previous session

Macro News

United States : US inflation remained stable at 3.7% y/y in September 2023 (August: 3.7%). This steadiness was due to a milder decline in energy prices, which fell by 0.5% following a more significant 3.6% decrease in August, primarily driven by a rebound in fuel prices. In other categories, price increases softened for items such as food, new vehicles, apparel, medical care commodities, shelter, and transportation services. Costs for used cars and trucks, as well as medical care services, continued to decline. The core CPI slowed to 4.1%, marking its lowest reading since September 2021.

United Kingdom : The British economy expanded by 0.2% m/m in August 2023, in line with market expectations, marking a turnaround from the revised 0.6% contraction experienced in July. The growth was led by a 0.4% increase in services output, particularly in professional, scientific, and technical activities (1.2%) and education (1.6%). However, consumer-facing services saw a decline of 0.6%, primarily due to contractions in the sports and recreation activities industry and other personal service activities. Production output shrank by 0.7%, with manufacturing declining by 0.8% as several of its sub-sectors experienced declines. Looking at the three months leading up to August, GDP increased by 0.3%, with growth observed across all sectors.

Malaysia : Malaysia's industrial production declined by 0.3% in August from a growth of 0.7% in July 2023. Sector-wise, the manufacturing sector contracted by 0.6%, while production in the mining sector increased by 0.1%, and electricity production accelerated to 1.9%. Domestic-oriented industries led the improvement, growing by 4.2%, while export-oriented industries contracted by 2.6%.

Fixed Income

Global bonds: US CPI reading at steady pace of 3.7% sent UST market lower overnight where we noted the 10Y UST rising 12 bps to 4.71%. The losses reversed early gains on the back of concerns of new capital controls in China and a discussion about potential reversal of bond purchases by the European Central Bank. News reports suggest China's Securities Regulatory Commission prohibiting domestic brokerages from accepting new clients for offshore trading. Eurozone government yields also rose on the back of the US consumer inflation data release. Minutes from the ECB September meeting showed not all policymakers agreed to the deposit rate hike to the record 4%, but they did signal an end to the tightening cycle.

MYR Government Bonds: MGS market was in cautious mood amid GII 08/33 tender with MYR 5.5 billion on the sale block. Prior to the tender we saw the WI given in higher range of 4.09% to 4.10%. However, late demand lifted the BTC to a final 2.733x. We also note that large GII maturities are due in October and November which may have sparked the late demand. Other MGS papers were seen to rally as well amid the primary segment boost. The 3Y and 5Y MGS each shed 2 bps.

MYR Corporate Bonds: Corporate bonds closed mixed and with lower volume than the day before. Despite the stronger showing in the MGS space yesterday, corporate bond trading was still relatively cautious after the recent risk aversion in the overall bond market especially ahead of Malaysia’s budget announcement today. Amongst the heavier trades done was 10/30 Amanat Lebuhraya (AAA) at 4.36% (+6 bps) and 01/31 PLUS (AAA) at 4.32% (+12 bps).

Forex

US: The dollar index rebounded from its three-weeks low to close at 106.60-level after data showed US inflation at a steady pace in September. It also found support from the steady initial jobless claims at 209K in the week ended 7th October, the same as its prior week’s reading and lower than market expectations of 210K.

Europe: Against firmer dollar, the EUR fell 0.9% to 1.053. ECB policymakers continue to suggest that the central bank is probably already done rising interest rates in view that the inflation is on its way to 2.0%. French central bank chief Francois Villeroy de Galhau and Greece central bank chief Yannis Stournaras both pare down the expectations of further tightening as the policy is already sufficient to bring down inflation. In parallel with lower EUR, the GBP was also on the downside, falling 1.1% to 1.218. Data showed UK’s GDP grew by 0.2% m/m in August, in line with consensus, after 0.6% m/m contractions in the previous month, supported by growth in services. Meanwhile, its industrial production declined by 0.7% m/m, larger than what was market expecting at 0.2% m/m contractions.

Asia-Pacific: The CNY weakened 0.1% against the dollar. This is despite the stronger currency fixing by China’s central bank. Before the market opened, the PBoC set yuan’s midpoint fixing rate at 7.1776 or 1,156 pips stronger than Reuters’ estimate. The JPY also posted losses after Japan’s PPI fell short from market forecast, challenging the BoJ’s plan to rollback its negative interest rate policy on sustainable inflation. Japan’s producer inflation in September dropped 0.3% m/m while the market was looking at 0.1% m/m growth.

MYR: The ringgit strengthened 0.1%, taking cue from the lower USD during the previous session. The ringgit also found support from the better reading in industrial production data (Aug 2023: -0.3% y/y vs. consensus -1.2% y/y) and faster growth in retail sales (6.3% y/y vs. July’s 5.5% y/y).

Other Markets

Gold: Gold prices fell 0.3% to close at USD1,869/oz after an upside surprise in headline CPI and jobless claims pushed up bond yields and the dollar.

Crude Oil: Oil prices closed mixed with Brent rose 0.2% while WTI shed 0.7%. The drop in WTI can be attributed to the large build up in US crude stockpiles, which rose by 10.2 million barrels during the last week, compared to market expectations of 500,000 barrels.

FBM KLCI: Local bourse gained 0.5% to 1,444 with foreign investors were the net buyers of Malaysian shares with RM118.0 million inflow.

US Equities: Wall Street, however, closed in red on higher expectations of further interest rate hike. The Dow Jones fell 0.5%, S&P500 shed 0.6% and Nasdaq dipped 0.6%.

Source: AmInvest Research - 13 Oct 2023