Snapshot Summary…

Global FX: The DXY index rose as market sentiment remained cautious ahead of FOMC

Global Rates: US Treasury curve bear steepened after strong labour cost data

MYR Bonds: The MGS/GII market staged a rally ahead of BNM meeting

USD/MYR: The pair end the day at 4.763 after reaching as low as 4.754

Macro News

Euro Area : The Euro Area's inflation rate fell to 2.9% y/y in October 2023, reaching its lowest level since July 2021. The core inflation rate, which excludes food and energy, also cooled to 4.2%, its lowest since July 2022. However, both rates remained above the European Central Bank's 2% target. Energy prices fell by 11.1%, and inflation slowed for food, alcohol, tobacco, and non-energy industrial goods. Services inflation remained stable. On a monthly basis, consumer prices increased by 0.1% in October, following a 0.3% rise in September.

Japan : The Bank of Japan (BoJ) left its short-term interest rate at -0.1% and the 10- year bond yield at around 0% in its October meeting, as expected. The BoJ redefined 1.0% as an upper bound for long-term interest rates and removed its commitment to defend that level. The long-term interest rate cap had been at 1% since July, up from the previous 0.5%.

China: China's official Manufacturing PMI unexpectedly dropped to 49.5 in October 2023, down from 50.2 in September, indicating economic recovery in the nation remains fragile. New orders returned to contraction, and foreign sales fell at a faster pace, while employment continued to drop. Input price inflation eased to a three-month low, and output prices fell for the first time in three months. However, business confidence improved slightly.

Fixed Income

Global bonds: UST curve bear steepened overnight after data showed employment cost index grew faster than what market was expecting. The index rose 1.1% q/q in 3Q2023, compared to 1.0% in the previous quarter and market consensus. Also, home prices in 20-cities rose 2.2% y/y in August 2023, beating market expectations of 1.6% y/y. During Asia session, the UST 10Y yield drift lower by roughly 7 bps after the BoJ decided to redefine its 1.0% buying commitment on 10Y JGB yield which it set just three months ago as a loose reference rather than rigid cap. While still maintaining the negative interest rates policy, the central bank is allowing long-term borrowing costs to rise more.

MYR Government Bonds: Ringgit bonds staged a rally on growing sentiment that OPR to remain status quo with all 21 economists in Bloomberg survey are expecting no move. This was followed by BoJ’s decision in loosening its grip on government bond yields. MGS/GII yields eased by 1 – 6 bps across the curve.

MYR Corporate Bonds: The sentiment in the PDS market was rather mixed as losers and gainers were seen on equal grounds. Volume traded fell to MYR678 million amidst higher volume in sovereign space. Among notable trades were MYR100 million on 12/38 PLUS Bhd done at 4.42%, MYR75 million on TNB Power (AAA rated) done at 4.70%, and MYR10 million on 10/34 Edra Solar (AA2) done at 4.75%.

Forex

United States: The dollar rose from early day weakness to trade higher by the close on Tuesday as sentiment in markets remained cautious as we head towards FOMC later this week. Strong numbers for the US employment cost index added to USD strength.

Europe: As the dollar was supported, the euro fell. Pressuring the euro also was release of slower than expected Eurozone's October CPI which was up 0.1% m/m (expected 0.3%; last 0.3%). Meanwhile, markets also noted Germany's September Retail Sales down by 0.8% m/m (expected 0.5%; last -1.2%).

Asia-Pacific: Chinese yuan was slightly under pressure following the release of weak PMI data. The USD/CNY pair ended the day at 7.316, up 0.1%, even as PBOC had set the daily midpoint rate USDCNY at 7.1779, 2 pips firmer than the previous fix of 7.1781. The Australian dollar also reacted negatively from the weak China’s PMI data, falling 0.6% for the session. Meanwhile, BoJ redefined the 1% yield ceiling level to be loose “upper bound” on the 10Y JGB. However, the BoJ remained patient in maintaining accommodative policy, which meant a drop in JPY occurred yesterday. The JPY dropped 1.7% to end the day at 151.68, a level last seen in the 1990s.

MYR: The ringgit was held at 4.763 by the end of the day after it hit 4.754. The weaker than anticipated Chinese manufacturing data capped its gains, and as FX markets were still cautious ahead of FOMC and MPC this week.

Other Markets

Gold: Gold fell below the USD2,000 level as the dollar rose ahead of the start of the 2-day FOMC meeting.

Crude Oil: Global oil prices fell as markets received weak data out of China and Europe. Brent fell below USD88 per barrel and WTI settled near the USD81 per barrel level as Energy Information Administration (EIA) showed that US crude oil stocks rose by 1.4 million barrels and OPEC data showed crude output rose by 180K in October, driven by production in Nigeria and Angola.

FBM KLCI: Malaysian stock market closed higher yesterday, aided by hints of bargain hunting. This was despite regional markets closing lower on the back of weak China PMI numbers. Foreign investors supported the trading yesterday as they were net buyers of MYR58.3 million Malaysian equities.

US Equities: US stocks rose amid a pickup in risk appetite on news of hostage releases offering in the Middle East and ahead of FOMC which markets see as likely that the Fed will not hike rates.

Source: AmInvest Research - 1 Nov 2023