Snapshot Summary…

Global FX: DXY index trimmed early gains following softer labour market data

Global Rates: Treasuries closed firmer amid concerns that rate hikes could impede global growth

MYR Bonds: The MGS market was in bearish tone, aligning with the prior day’s UST movement

USD/MYR: The ringgit marginally weakened amidst geopolitical risks and key US data later tonight

Macro News

United States : In the 3Q2023, the US economy grew at a strong pace of 4.9%, which is better than market’s expectation. Growth was driven by increased consumer spending, higher exports, and positive contributions from private inventories and government spending. However, there was a decrease in non-residential investment, particularly in equipment.

Euro Area : The European Central Bank (ECB) maintained its interest rates at multiyear highs during the October meeting, shifting to a more cautious "wait-and-see" stance after a series of 10 consecutive hikes since July 2022. This decision reflects concerns about an impending recession and aims to bring inflation back to its 2% target over the medium term. The main refinancing operations rate stands at a 22-year high of 4.5%, while the deposit facility rate is at an all-time high of 4%.

Malaysia : Producer prices in Malaysia increased by 0.2% y/y in September 2023, showing growth for the first time since January. This recovery was driven by higher prices in various sectors, including agriculture, mining, and electricity. On a monthly basis, producer prices rose by 0.9% in September.

Fixed Income

Global bonds: Treasuries closed strongly where we suspect concerns that global central banks would hike rates could potentially limit ongoing economic recoveries. The ECB did not raise rates, for the first time in ten meetings, as inflation has eased. However, ECB President Lagarde has refused to signal that rate have peaked and that that it would be premature to discuss rate cuts. Meanwhile, release of strong US 3Q2023 GDP added pressure on the Fed. Also, The GDP Chain Deflator rose 3.5%, in contrast to the 1.7% increase in the 2Q2023.

MYR Government Bonds: The MGS market was in a bearish tone to align with the prior day’s UST market that saw the 10Y UST again moving towards the 5.00% level. The MGS market saw yield higher by 1 – 3 bps especially on the front end of the curve. At the same time, MYR IRS curve also shifted higher. We suspect foreign players remain bearish on local bonds as they foresee regional central banks will be under pressure to hike interest rates amid the strong USD. Recently we saw Indonesia’s and Philippines’ central banks taking the initiative to raise rates to address the imbalance.

MYR Corporate Bonds: Especially with little support from the MGS market, and continued concerns over the direction of global rates, MYR PDS segment saw weakness yesterday. The heavier losses yesterday include 07/37 PASB (AAA) at 4.61% which rose 9 bps on MYR80 million flows, and 08/38 YTLP (AA1) which moved 10 bps higher to 4.71% on MYR70 million volume.

Forex

United States: The DXY index opened the session at 106.59 and ended the day at 106.60 as it trimmed early gains following softer labour market data. The number of initial jobless claims unexpectedly rose to 210K during the week ended 21st October, up from 200K in the prior week and 208K market expectations. This is despite the upside surprise in the 3Q2023 advance GDP data, which suggests further resiliency in the US economy. For today, investors will focus on Fed preferred inflation measure PCE Price Index which will be released later tonight. The market is expecting the core PCE Price Index to grow slower at 3.7% y/y for September compared to 3.9% y/y in August 2023.

Europe: As the dollar edged higher, the Euro held steady around 1.056 after the ECB left its interest rate unchanged, as widely expected, snapping its 10 consecutive rate hikes. At the same time, the central bank insisted that any talks of rate cuts are premature and deemed that current level would help to bring down inflation if “maintained for a sufficiently long duration”. The GBP however, inched slightly higher by 0.1%. On the macro front, the Confederation of British Industry’s monthly retail sales balance tumbled to -36 for October 2023, down from -14 in the prior month, underpinning the slowing economy amidst high cost of living and borrowing costs.

Asia-Pacific: The CNY appreciated slightly by 0.01% but remained near its one-year low it reached back in September 2023 as the currency being pressured by the widening yields with its US counterpart, local growth concerns, and stronger USD. The JPY weakened again by 0.1% to settle at 150.40 after it closed at 150.23 in the previous day, slowly grinding towards decades low of 151.94 it reached last year when authorities intervened into the market. Japanese Finance Minister Shunichi Suzuki warned traders selling the yen and emphasised that authorities are closely watching the currency’s moves.

MYR: The ringgit weakened marginally by 0.1% to settle the day at 4.787 after being traded in a tight range of 4.786 – 4.792. Investors continue being cautious amidst geopolitical conflict in Middle East and US PCE inflation date later tonight. Despite stronger-than-expected 3Q2023 US GDP, we reiterate the call of Fed to cut rate by mid-2024 as leading indicators such as the NFIB hiring plan is indicative of higher unemployment ahead and with medium-term outlook of the Fed to turn dovish, support for the Ringgit would eventually step in.

Other Markets

Gold: Gold price was supported by the safe-haven demand amidst Middle East conflict despite the strong US GDP data. It rose 0.3% to USD1,985/oz.

Crude Oil: Brent and WTI fell 2.4% and 3.3%, respectively. The pressure on oil price came from the higher rise in US crude inventories at 1.4 million barrels gains compared to market forecast of 240K barrels gains.

FBM KLCI: Local bourse fell 0.1% to close the day at 1,441. Foreign investors were the net sellers of Malaysian shares at RM100.5 million flow.

US Equities: Wall Street closed in red again as the Dow Jones fell 0.8%, S&P500 dropped 1.2% and Nasdaq tumbled 1.8%.

Source: AmInvest Research - 27 Oct 2023