Snapshot Summary…

Global FX: DXY index fell amidst mixed performances among major currencies following Fed speeches

Global Rates: UST yields retreated from recent highs amid lack of fresh drivers

MYR Bonds: MGS market closed moderately weaker despite the higher traded volume in PDS market

USD/MYR: The USD/MYR pair closed above 4.76 levels on Friday

Macro News

United Kingdom: In September 2023, retail sales in the UK fell by 0.9% compared to August, reversing the 0.4% increase seen in the previous month. This decline was worse than expected, with non-food stores, particularly furniture, lighting, watches, jewellery, clothing, and department stores, being the most affected. On a year-on-year basis, retail sales fell by 1.0%, marking the smallest decline since April 2022 but still worse than forecasts of a 0.1% drop.

China: The People's Bank of China (PBoC) decided to keep lending rates steady in its October fixing. The one-year loan prime rate (LPR) remained at 3.45%, while the five-year rate was held at 4.2%. This decision aligns with expectations. The PBoC's move came amid signs of stabilising Chinese economy, with better-than-expected Q3 GDP figures and solid September data for retail sales, industrial output, and the jobless rate.

Japan: Japan's annual inflation rate fell to 3.0% in September 2023, the lowest since September 2022. Price increases eased for various categories, including furniture and household utensils, clothing, and culture and recreation. Additionally, costs for fuel, light, and water charges decreased further due to lower electricity and gas prices. On the other hand, food prices saw the highest increase since July 1976. Core inflation dropped to a 13-month low of 2.8%, remaining above the Bank of Japan's 2% target for the 18th consecutive month.

Malaysia: Inflation declined to 1.9% y/y in September 2023 (August 2023: 2.0%), bringing the year-to-date inflation to 2.8% (2022: 3.4%). Core inflation, which excludes volatile items and controlled prices, remained at 2.5% y/y. On a year-to-date basis, core inflation stood at 3.3% (2022: 3.0%). Malaysia’s 3Q2023 advance GDP data showed the economy grew 3.3% y/y compared to 2.9% in the previous quarter. On a quarter-on-quarter basis, the economy rebounded to 5.2% growth from a decline of 0.8% in the previous quarter. This brings the year-to-date growth to 3.9%.

Fixed Income

Global bonds: Friday saw a rally in the UST market but just paring their weekly losses. On Friday, yields retreated from recent highs amid lack of fresh drivers. However, UST saw demand ahead of heavy upcoming week of US macroeconomic data. These will include advance 3Q2023 GDP, S&P US manufacturing and services PMI, monthly home sales, personal income, and spending, and PCE prices for September. Similarly, German Bunds were stronger on Friday, but yields had already rose significantly for the week. In addition, longer tenor UK Gilt yields reached their highest in more than 20 years. This was despite expectations of the weakening UK economy and doubts over another rate hike by the BoE. Governor Bailey said inflation may show a marked slowdown in November with gradual decreases to follow. Lastly, there could be incoming short-term support for JGBs after BoJ announced the extension of loans to banks (raising liquidity) to counter the rise in yields, which reached 10-year highs.

MYR Government Bonds: MGS market closed moderately weaker; the front of the yields curve on the 3Y and 5Y benchmarks edged up 1 bp each to close at 3.68% and 3.80% respectively. However, there was relief on the swap curve with the 5Y IRS closing -2 bps. After BNM announced the reopening of 7Y MGS 04/30 at of MYR5.0 billion size, the benchmark was spotted higher by 3 bps to close at 4.07%. There was positive data for the MGS as Malaysia indicated September CPI fell to +1.9% y/y from +2.0% y/y in August. Malaysia also reported an advance number for 3Q2023 GDP, at +3.3% y/y though this was up from 2.9% in the prior quarter.

MYR Corporate Bonds: The ringgit PDS market continued to weaken on Friday, to follow the recent sentiment in the MGS, as well as the downtrend in the MYR. Weaker close in the PDS segment include AAA and AA1 papers including 05/27 YTL Power (AA1) at 4.31% (+3 bps) and AAA rated 01/32 Rantau at 4.35% (+2 bps) as well as 09/27 Danga (AAA) (+ 1bp).

Forex

US: The USD fell on Friday, in line with the fall in UST yields. Comments from Philadelphia Fed Patrick Harker and Cleveland Fed Loretta Mester suggested that they favoured for the Fed to pause. The market also hinted on the timing of a possible rate cut next year when Atlanta Fed Raphael Bostic said that he does not think that the Fed will cut interest rates before the middle of 2024.

Europe: EUR and GBP took advantage of the lower USD as both gained by 0.1% and 0.2%, respectively. Though gains were capped as data released last Friday showed mixed picture on Eurozone’s and UK’s economic prospect. Germany’s PPI contracted 0.2% m/m in September, worse than market expectation of 0.4% m/m growth. UK’s retail sales also dropped by 0.9% m/m, after 0.4% m/m gains in the prior month and compared to consensus of 0.2% m/m contractions.

Asia-Pacific: The PBoC kept its 1-year and 5-year loan prime rate unchanged at 3.45% and 4.20%. The decision came after China’s economic data released earlier last week showed stabilising performances. Nonetheless, the yuan weakened 0.1% to 7.315. The Japanese yen was around 149.8-level by the end of Friday as traders continue to monitor for possible intervention by authorities. Japan’s headline inflation rate eased to 3.0% y/y in September 2023 from 3.2%, alongside easing core inflation as well at 2.8% y/y from 3.1%, but beaten market forecast of 2.7% y/y.

MYR: Malaysia’s ringgit settled at 4.768 against the Greenback to remain near all-time low of 4.784. Further retracement in Malaysia’s headline inflation at 1.9% from 2.0% may support the case for the OPR to remain accommodative to support domestic economy.

Other Markets

Gold: Gold extended gains on Friday as Middle-East conflict continue to spark safehaven demand.

Crude Oil: Oil prices dropped with Brent fell 0.2% while WTI shed 0.7% as investors continue to assess geopolitical risk Middle-East conflict.

FBM KLCI: Malaysia’s equity market fell, in tandem with weaknesses in global stock markets. KLCI fell 0.1% with foreign investors were the net sellers with MYR98.4 million.

US Equities: US stocks posted losses to go along with the ongoing Middle-East conflict. Dow Jones dropped 0.9%, S&P500 fell 1.3% and Nasdaq fell 1.5%.

Source: AmInvest Research - 23 Oct 2023