Snapshot Summary…

Global FX: DXY was little changed and held above the 106-level

Global Rates: Treasuries closed mixed after Fed-preferred inflation gauge came in largely within expectations

MYR Bonds: The MGS market was mixed while volume traded in PDS market was lower

USD/MYR: The ringgit was marginally firmed but remained near all-time low

Macro News

United States : The annual Personal Consumption Expenditure (PCE) inflation rate in the US remained steady at 3.4% in September 2023, matching the previous month. On a monthly basis, the personal consumption expenditure price index increased by 0.4%, the same as in August. Excluding food and energy, the annual core PCE inflation rate slowed to 3.7%, reaching its lowest point since May 2021. The monthly change of core PCE inflation rate rose to 0.3%, marking a four-month high and aligning with expectations.

China : In the first nine months of 2023, profits earned by China's industrial firms decreased by 9.0% y/y showing a slowdown from the 11.7% decline in the previous period. This suggests signs of stabilisation in the economy and reduced pressure on profit margins. Both state-owned firms (-11.5% vs. -16.5% in January-August) and the private sector (-3.2% vs. -4.6%) experienced softer declines in profits.

Australia : Australia's final demand producer price index rose by 1.8% q/q in 3Q2023, marking an acceleration from the 0.5% gain in 2Q2023, which was the lowest in over two years. This is the 13th consecutive quarter of growth and represents the fastest pace since 3Q2022, primarily driven by higher prices in various sectors. Key contributors to this increase were the building construction sector, petroleum refining and petroleum fuel manufacturing, and electricity supply, gas supply, water supply, sewerage, and drainage services.

Fixed Income

Global bonds: Treasuries closed mixed as yields on shorter tenor up until belly part of the curve fell while yields on longer tenor rose. This is after data released showed the headline PCE Price Index grew slightly faster at 0.4% m/m, compared to market forecast of 0.3% m/m, spurred partly by higher oil prices. Core PCE Price Index, however, grew slower at 3.7%, in line with market expectations. Yields movement this week could be muted pre-US Fed meeting as investors remained cautious. The markets will find any hints or possibility of rate hike in December or January 2023 meeting despite pricing in 99% of rate hold during this Wednesday’s meeting.

MYR Government Bonds: In the local bond space, MGS curve was mixed as yield on 10Y closed the day at 4.14%. Investors continue to be cautious amidst geopolitical concerns and the potential rate hike by regional central banks to defend currencies against stronger than USD.

MYR Corporate Bonds: Volume traded in the PDS market fell to MYR597 million from MYR880 million in the previous session. Among notable trades were MYR70 million on 04/25 LPPSA done at 3.63%, and MYR20 million on 06/27 Johor Corp done at 4.68%.

Forex

United States: The dollar closed Friday at 106.56 as it reacted mutely from the Fed preferred inflation measure PCE Price Index which generally came in within market expectations. Nonetheless, personal spending grew unexpectedly larger at 0.7% m/m, beating consensus at 0.5% m/m, highlighting resilient private consumption in the economy. This week, all eyes will be on the US Fed meeting as the market is looking for the central bank to maintain current interest rate level.

Europe: The EUR was little changed around 1.057. The quarterly ECB Survey of Professional Forecasters showed that inflation is expected to trend down to 2.0% target by 2025, while forecast for 2023 was revised higher to 5.6% from the previous 5.5%, reflecting the recent oil price development. In addition, GDP growth rate forecast for 2023 and 2024 was cut lower to 0.5% from 0.6% for the former and from 1.1% to 0.9% for the latter, which may suggest the effects of longer duration of elevated interest rate. The GBP, however, fell 0.1% to settle at 1.22. The Bank of England (BoE) is expected to maintain its interest rate at 5.25% and will continue to be hawkish despite growing worries on recession after sets of soft patches data released recently.

Asia-Pacific: The CNY found support after data showed profits earned by China’s industrial firms fell by only 9.0% y/y during the first nine months of 2023, improving from 11.7% contraction in the prior period, which can act as an early sign of stabilising economy. The currency then erased its gains and ended the day at 7.317. The USD/JPY pair meanwhile, pulled back on Friday to settle the week below 150-level after Japanese Finance Minister said that the government will continue to respond to the currency market “with strong sense of urgency” as the currency has been reaching above 150-level for the past few sessions.

MYR: The ringgit firmed 0.2% and closed at 4.778 after it was traded within the range of 4.773 – 4.786, though it remained near all-time low it hit recently. As the expectations for US Fed to remain steadfast in fighting inflation still elevated and riskoff environment amidst the conflict in the Middle East, emerging market currencies (EM) in general is likely to remain under selling pressure for shorter-term period. We see any sign of dovishness from the Fed at its upcoming FOMC meeting this week as the upside trigger to EM forex.

Other Markets

Gold: Gold price was propelled by fresh new worries surrounding the Middle East conflict as news flow suggested an escalation in the conflict. It went up by 1.1% to close at USD2,006/oz.

Crude Oil: Oil prices surged as worries that Middle East conflict could spread into a wider conflict which can further tighten its supply. Brent surged 2.9% while WTI climbed 2.8%.

FBM KLCI: Local bourse rose slightly by 0.1% to 1,442. Foreign investors and local retailers were the net sellers with MYR150.4 million and MYR27.6 million outflow, respectively.

US Equities: Wall Street closed mixed as the Dow Jones and S&P500 fell by 1.1% and 0.5%, but Nasdaq climbed 0.4%.

Source: AmInvest Research - 30 Oct 2023