Snapshot Summary…

Global FX: The DXY index gained as the FOMC remains open for future hike

Global Rates: UST market rallied as yields dropped 14 – 21 bps following central bank policy meeting

MYR Bonds: Liquidity was razor thin in the domestic market ahead of US Fed decision after hours

USD/MYR: The ringgit weakened amidst firmer dollar and cautious market

Macro News

United States: In its November meeting, the Federal Reserve maintained the Federal Funds Rate (FFR) at its 22-year high of 5.25% - 5.50% for the second consecutive time. This decision reflects the Fed's dual focus on addressing elevated inflation and avoiding excessive monetary tightening. Policymakers stressed that any further tightening of policy would consider the cumulative impact of prior rate increases, the time it takes for monetary policy to affect the economy and inflation, and developments in both the economy and financial markets. The Fed acknowledged that the economy expanded strongly in the third quarter, the job market remains robust but with signs of cooling, and inflation continues to stay elevated.

Malaysia: The S&P Global Malaysia Manufacturing PMI for October 2023 remained at 46.8, unchanged from September, indicating the 14th consecutive month of contraction in the sector. New orders and production decreased, with employment also dropping at the fastest rate since June 2022. Backlogs of work saw a significant decline. Purchasing activity slowed, and delivery times lengthened due to material shortages. Input cost inflation reached its highest point since November, resulting in higher output costs for customers. However, business sentiment improved to a sixmonth high due to expectations of better demand conditions.

China: In October 2023, the Caixin China General Manufacturing PMI dropped to 49.5 from September's 50.6, unexpectedly contracting. This decline signalled the first contraction in China's manufacturing sector since July. The fall in output and only marginal new order growth pointed to a fragile economic recovery. Foreign sales decreased for the fourth consecutive month due to sluggish global economic conditions and high prices.

Fixed Income

Global bonds: Following the US Fed maintaining the FFR for the second straight meeting, the UST curve rallied as yields drift lower by 14 – 21 bps across the curve. While the central bank left the option of further rate hike on the table, market players seemed to think that it is already done with current hike cycle, thus explaining the rally. The bond market also found support from the unexpectedly lower reading on ISM Manufacturing PMI at 46.7 for October 2023, down from 49 in the prior month and market expectations. Though the gains were capped by the sign of a still resilient labour market as JOLT data showed job openings rose to 9.55 million from 9.49 million, beating the consensus of 9.25 million.

MYR Government Bonds: In the local bond market, liquidity was razor thin in the absence of fresh flows and trading activity was rather lacklustre. Market participants prefer to stay on the side line ahead of US Fed FOMC meeting last night whereby market was expecting Fed to keep the FFR steady at 5.25-5.50% and would be looking for clues of Feds forward guidance. MGS/GII yields closed little change as compared to previous day’s closing levels.

MYR Corporate Bonds: Muted sentiments in the sovereign space mirrored in the PDS market as trading volume fell further to MYR448 million from MYR678 million in the previous session albeit some papers made its debut during the day. Those papers include MYR100 million on 10/32 Danainfra Nasional done at 4.20%, MYR50 million on 10/42 Danainfra Nasional done at 4.49%, and MYR100 million on 05/24 Cagamas done at 3.71%.

Forex

United States: Fed Chairman Powell left the door open to future increases during his press conference, supporting USD demand. By the end of the day, the index rose 0.2% to 106.88.

Europe: EUR were supported as the USD showed signs of weakness post FOMC. However, GBP fell despite the USD weakness, as markets await today's BoE meeting where the central bank may face a tough decision either to lift or maintain the policy rate in view of still high inflation but against ongoing risks to economic growth.

Asia-Pacific: The CNY closed steady yesterday after the morning saw PBoC setting the fixing at its strongest level this year at 7,177.8. Markets were aided by the fixing as traders took as guidance authorities will implement measures to boost the currency in the short term period especially after release of weak PMI data recently and coinciding with continued firm US dollar. Meanwhile, JPY rose on rising expectations that BoJ could intervene to support the currency, especially after the central bank lifted the YCC limits this week and top currency diplomat Masato Kanda saying the speculative currency move recently has been one-sided against the JPY.

MYR: The MYR closed lower against the US dollar on Wednesday as markets awaited the Fed decision later after hours. Firm dollar amid cautious markets worked against the ringgit which moved 0.2% lower to close at 4.772. Meanwhile, Bank Negara Malaysia is scheduled to announce the decision on domestic monetary policy later today.

Other Markets

Gold: Gold was pressured and held below the USD2,000 level post FOMC. It closed overnight at USD1,983/oz, down 0.1%.

Crude Oil: Crude oil prices fell. Though there has been escalation in conflict in the Middle East, markets are slowly reducing chances the situation could deteriorate tremendously and hamper potential global crude oil supply. Brent fell 3.2%.

FBM KLCI: KLCI stocks finished lower on Wednesday amid a cautious market negative ahead of today’s BNM meeting. The FBM KLCI fell 0.5% to 1,435. Foreign investors were net sellers of MYR109.2 million local equities yesterday.

US Equities: US equities rallied overnight as Powell's press conference, though mentioning resilience of the economy, which is a signal of possibly tighter policy, also there was a signal that the rate hike cycle end may be close.

Source: AmInvest Research - 2 Nov 2023