Snapshot Summary…

Global FX: The dollar held steady on Friday amidst mixed performance in major currencies

Global Rates: UST market rallied, in tandem with rally in Bund and Gilt curves

MYR Bonds: The MGS market saw tepid volume despite being resilient after sell-off in the UST market in the previous session

USD/MYR: The ringgit depreciated while regional currencies were mixed against the USD

Macro News

United States : The University of Michigan consumer sentiment index for the United States declined to 63 in October 2023, marking its lowest level in five months according to preliminary estimates. The gauge for current economic conditions also reached a five-month low of 63, down from 68.1 in the previous month, while consumers' future expectations decreased to 60.7 from 66, which was also the lowest in five months. Notably, year-ahead inflation expectations rose to 3.8% from 3.2% in the prior month, reaching the highest level since May 2023, and the five-year outlook increased to 3% from 2.8%.

Euro Area: Industrial production in the Euro Area increased by 0.6% m/m in August 2023, partially rebounding from the 1.3% contraction in July. The primary driver of this improvement was the production of durable consumer goods, which saw a 1.2% rise, marking the end of a four-month contraction period. This was followed by increases in the production of non-durable consumer goods (0.5%, the same as in July) and capital goods (0.3%, a significant improvement from the previous month's -3.1%).

China: In September 2023, China's consumer prices remained unchanged compared to the same period a year earlier, following a slight 0.1% rise in the previous month and falling short of the market consensus for a 0.2% gain. Food prices dropped by 3.2%, primarily driven by a steeper decline in pork prices (-22%). In contrast, non-food inflation accelerated to 0.7%, driven by price increases in clothing, housing, health, and education. Prices for transport fell at a slower rate.

Malaysia: Budget 2024 was tabled last Friday, and it was the first budget after the unveiling of the National Energy Transition Roadmap (NETR), New Industrial Master Plan (NIMP) and 12th Malaysia Plan Mid-Term Review (12MP) which are set shape the growth trajectory of the country going forward. The Budget allocates as much as RM393.8 billion spending, and fiscal deficit to GDP ratio is envisaged to narrow to 4.3% in 2024.

Fixed Income

Global bonds: UST market rallied on Friday on safe-haven demand following escalation of the Middle-East conflict after Israel urged Gaza residents to evacuate Northern Gaza ahead of further military actions. UST curve also found support from the lower-than-expected University of Michigan Consumer Sentiment indicator at 63 for October compared to market estimate of 67.2 and prior month’s reading of 68.1, combined with Philadelphia Fed President Patrick Harker’s (voting member) remark, indicating that he believes that the US Fed is likely done with rate hike cycle as price pressure is already waning. Both Germany Bund and Gilt market also rallied on Friday on risk-off mode. ECB President Christine Lagarde stated on Friday that officials will raise interest rates again if it is necessary, and they are also assessing the impact of prior rate hikes that are still feeding through.

MYR Government Bonds: The MGS market was resilient on Friday despite sell off in the UST space from the previous session as US September headline inflation beat market expectation. The MGII 08/33 which was tendered on Thursday at an average of 4.093%, remained bullish at 4.067% while the other parts of the curve traded 1 – 2 bps higher against Thursday’s level. All eyes were on the Malaysia 2024 budget which saw the government remain committed to cut budget deficit by reducing subsidies and hike service tax to achieve it.

MYR Corporate Bonds: The volume traded in the PDS market remained tepid at RM307 million as market players waited for Budget 2024 tabling. Among notable trades were RM50 million on 02/26 Danum Capital triple-A rated, RM60 million on 09/37 Pengurusan Air Selangor AAA-rated, and RM30 million 06/26 SP Setia AA-rated done at 4.25%. undefined

Forex

US: The US dollar remained supported but levels on Friday fell after reaching weekly highs the day before. Comments from FOMC voter, Philadelphia Fed president Patrick Harker who said that the FOMC is likely done raising rates, did not help the greenback. The DXY index held steady at 106.65 on Friday.

Europe: EUR and GBP fell. The Eurozone's August Industrial Production rose 0.6% m/m (last -1.1%) but fell 5.1% y/y (last -2.2%). EUR/USD fell 0.2% to 1.051 and GBP/USD fell 0.3% to 1.214.

Asia-Pacific: Chinese yuan was in narrow range on Friday. There was little to drive the currency from the flat September CPI reading and continued drop in PPI. The September CPI was +0.2% m/m (last +0.3% m/m) and unchanged y/y (last +0.1% y/y). Also, September PPI was -2.5% y/y (last -3.0%). The September trade surplus reached USD77.71 billion (last: USD68.36 billion surplus) as imports fell 6.2% y/y (last -7.3%) and exports decreased 6.2% y/y (last -8.8%). USD/JPY was sustained just below the 150 level with traders cautious that Japan authorities may step in to support JPY. AUD weakened to go along with strong USD and release of weak Chinese data.

MYR: The ringgit closed weaker on Friday commensurate with the strong US dollar. However, there was a boost for the MYR along the crosses as regional currencies weakened more against the USD compared with the MYR as MYR dipped below 4.73.

Other Markets

Gold: Amid the volatility in global markets, gold prices surged alongside crude. Gold rose 4.8% on Friday.

Crude Oil: Oil prices surged by >5% on Friday as the market became increasingly more nervous with the conflict in the middle east. A US action last week to impose sanctions on owners of tankers carrying Russian oil priced above the G7 cap of USD60 per barrel also boosted oil prices.

FBM KLCI: Malaysian equities posted mild gains as investors paid attention to the 2024 Budget announcement. The FBM KLCI rose 0.32 points to 1,444.14.

US Equities: DJIA rose but S&P and the Nasdaq fell. Sentiment remained down amid the Middle East turmoil and as investors reacted to the University of Michigan's preliminary October index of consumer sentiment at 63.0 compared to 68.1 in September.

Source: AmInvest Research - 16 Oct 2023