Snapshot Summary…

Global FX: The USD climbed higher and closed above 106.5-level, pressuring other major currencies

Global Rates: UST curve bear steepened as its 10Y yield rose 8 bps

MYR Bonds: The MGS market saw another day of bearish performance on lingering sentiment from strong economic data

USD/MYR: The MYR hit above 4.74-level as geopolitical tension and concerns for ‘higher-for-longer’ theme remains

Macro News

United Kingdom: The United Kingdom's inflation rate in September 2023 held steady at 6.7%, staying at its 18-month low from August. Softer price increases in food, nonalcoholic beverages, and furniture were balanced by a smaller decline in energy costs due to a rise in motor fuel expenses. The core inflation rate, excluding energy and food, dropped to 6.1%, the lowest since January. On a monthly basis, the Consumer Price Index (CPI) rose by 0.5%, the most significant increase since May.

Euro Area: The Euro Area's inflation rate was officially confirmed at 4.3% y/y in September 2023, a decrease from the previous month's 5.2%, marking the lowest rate since October 2021. This reduction in inflation was attributed to slower price increases in several categories, including services (4.7% vs. 5.5% in August), non-energy industrial goods (4.1% vs. 4.7%), and food, alcohol & tobacco (8.8% vs. 9.7%). Additionally, energy costs experienced further declines (-4.6% vs -3.3%). The core inflation rate, which excludes volatile food and energy prices, was also officially confirmed at 4.5% in September, marking its lowest level since August 2022.

China: China's economy grew by 4.9% y/y in the 3Q2023, exceeding market expectations and indicating the impact of increased support for the country's economy by Beijing. This expansion also led to a 1.3% increase in GDP on a quarterly basis, which shows improved momentum compared to the previous quarter, which had seen only 0.5% growth.

Fixed Income

Global bonds: Fed speeches suggesting a rate hike pause partly helped contained losses in the UST market. Fed Governor Christopher Waller suggested that the US Fed can afford to “wait and see” how the economy evolves before deciding further on the path of the policy rate. New York Fed John Williams also offered a similar perspective, adding that the Fed has made progress lowering inflation. However, both also communicated that more tightening is needed if the economy continues to show strength. The UST curve bear-steepened and the move can be attributed to the rebound in oil price, which may re-ignite inflationary pressure, and the larger-thanexpected growth in UK’s headline and core CPI. Gilt market reacted unfavourably as well as yields traded higher by 10 – 16 bps throughout the session. The 10Y yield on UST rose 8 bps while 10Y yield on Gilt climbed 15 bps. On another note, the BoJ announced another round of unscheduled bond-purchase operation after the 10Y JGB yield touched a new decade high of 0.815%.

MYR Government Bonds: On local shores, govvies curve steepened yesterday with belly to long ends part of the yield curve climbing 1 – 3 bps as levels tracked global yield movement after US retail sales grew more than expected.

MYR Corporate Bonds: The volume traded in the PDS market declined to MYR639 million after reaching MYR1.06 billion in the previous day. Most papers were traded on bearish tone especially on AA-rated papers and above. Among notable trades were MYR100 million on 05/46 Danainfra Nasional (GG rated) done at 4.59%, MYR200 million on PLUS 0137 (AAA rated) done at 4.51%, and MYR 30 million on 05/27 YTL Power (AA1 rated) done at 4.27%.

Forex

US: The US dollar climbed overnight and tracked the upside to UST yields. Dollar strength was also supported by continued worries over the Middle East crisis. Remarks from Fed officials (New York Fed President Williams and Governor Waller who are both FOMC voters) implying more tightening is needed in the case inflation is not slowing as expected were particularly supportive to USD.

Europe: ECB policymaker Holzmann said that inflation risks could lead to more rate hikes but policymaker de Guindos said that economic activity is expected to remain subdued till the end of2023. The EUR fell amid USD strength. GBP also fell though the UK September CPI was +0.5% m/m, as expected (last 0.3%). Eurozone September CPI was +0.3% m/m, as expected (last 0.5%).

Asia-Pacific: Official data showed China GDP grew 1.3% in 3Q2023 vs expectation of about 1% and prior quarter’s 0.5%. This pared CNY weakness near 7.316 though already moving to weakest level since September. Retail sales and industrial production data for September also beat estimates. Prior to the market opening, the PBoC set the midpoint rate at 7.1795 per dollar, almost flat against the previous fix of 7.1796. Meanwhile, USD/JPY remained slightly below 150 as recent dovish remarks from Fed aided JPY vs USD. Lastly, AUD pared gains. Firm China macroeconomic data aided sentiment, but strong USD late yesterday placed late pressure on AUD.

MYR: The ringgit closed weaker again yesterday amid risk aversion due to the Middle East crisis. The firm dollar also influenced the weaker ringgit move. By the close of trading day, the USD/MYR was spotted at 4.747 or up 0.2% for the day.

Other Markets

Gold: Gold surged 1.3% to USD1,948/oz as the escalation in Middle East conflict spurred further safe haven demand.

Crude Oil: Oil prices continued to rise with Brent near USD91 per barrel as Middle East concerns continued especially regarding the hospital bombing in Gaza.

FBM KLCI: Late net buying activity reversed early losses in Bursa Malaysia trading yesterday. Strong China macroeconomic aided sentiment though caution amid geopolitical risks lingered. The FBM KLCI index ended at 1,447 or up 0.2% for the day.

US Equities: Wall Street closed mixed as investors continue to assess the development in Middle East conflict. Dow Jones climbed slightly by 0.04% while S&P500 fell 0.01%.

Source: AmInvest Research - 19 Oct 2023