Fixed Income & FX Research undefined

Snapshot Summary…

Global FX: Slower gain in NFP which led to higher unemployment rate sent DXY index lower

Global Rates: UST posted third days of gain, in tandem with falling yields on bunds and gilts

MYR Bonds: MGS/GII papers sustained strength on Friday, taking further cue from the decline in UST yields

USD/MYR: The ringgit strengthened amidst broad dollar sell-off

Macro News

United States: The October US nonfarm payrolls increased by a smaller 150K vs consensus 175K while the September number was revised lower to 297K from 336K, and the August payrolls revised lower to 165K from 227K. The US Labour Department also reported that the October unemployment rate was 3.9% (consensus: 3.8%), vs 3.8% in September. October’s average hourly earnings rose 0.2% (consensus: 0.3%) versus an upward revised 0.3% (from 0.2%) in September.

United States: The US ISM Services PMI index fell to 51.8 in October (consensus: 53.0) from 53.6% in September. However, October marked the 10th consecutive month of growth for the US services sector. Meanwhile, the S&P Global US Services PMI final reading fell to 50.6 in October from 50.9 preliminary reading, but up from September final reading of 50.1.

China : China's October Caixin Services PMI index rose slightly to 50.4 from 50.2 prior month (consensus: 51.2). The September number was a nine-month low and although slightly higher, the October figure still suggests influenced by weak household income growth and uncertainties in the job market.

Fixed Income

Global bonds: US Treasuries posted a third day of gains on Friday. Overall, last week’s gains were initially sparked by markets viewing the Fed is probably done with rate hikes. Increase in weekly jobless claims numbers as well as the Treasury Department’s plan for lower-than-expected quarterly refunding coupled with Friday’s NFP missing estimates by about 25K while the prior two month’s data were revised downward made it a good week for the bond market. The 10Y UST shed 11 bps Friday to close at 4.56%, its lowest in three weeks, while also being down 29 bps w/w. CME Group's FedWatch Tool indicate futures market is now pricing a 5% probability of a Fed hike in December, down from 20% on Thursday, while the probability of a January hike have fallen to 11% from 28%. Elsewhere, Gilt and Bund yields fell in tandem.

MYR Government Bonds: MGS/GII papers sustained strength on Friday, taking further cue from the decline in UST yields, as well as hanging on to BNM’s policy rate decision and policy statement. On Friday, the 10Y MGS shed 4 bps to 3.96% on MYR150 million volume. The 7Y MGS fell 3 bps to a similar level of 3.96% on heavier MYR508 million flows; suggesting 7Y MGS could strengthen further, if the 10Y sustains at the present yield.

MYR Corporate Bonds: PDS market continued strengthening on Friday, spurred further by improved risk appetite. However, the traded volume was thinner at MYR394 million vs MYR775 million the day before. Gainers were led by names including AA1 MMC Corp 03/28 and 11/29 and on the GG segment such as 10/32 MKDK at 4.02%.

Forex

United States: The DXY index tumbled by more than 1.0% and hitting its lowest level since early September 2023 on growing bets the US Fed is already done with rate hike cycle. Data showed the US economy added less jobs than expected and the unemployment rate ticked up to 3.9%. Wage growth also was slower at 4.1% y/y in October 2023, down from 4.3% y/y and marked the slowest gains since June 2021.

Europe: Benefitting from the lower USD, the EUR and GBP surged 1.0% and 1.5%, respectively. The EUR also found some support from a hawkish statement by ECB Isabel Schnabel, saying the central bank cannot close the door yet on further rate hikes as the “last-mile” of disinflation can be the toughest part. In the UK, a slight improvement in Services PMI may not necessarily reflect better economic conditions as the headline reading remained under 50-level for three consecutive months amidst higher interest rates environment.

Asia-Pacific: The USD/JPY retreated from recent multi-year highs after the soft US job data. News flow also suggests that BoJ is looking to exit the ultra-accommodative policy stance sometime next year. Governor Kazuo Ueda is expected to move gradually towards an exit while maintaining dovish rhetoric. This is based on interviews with six sources familiar with BoJ’s thinking including government officials with direct interactions with the BoJ. At the same time, the CNY strengthened 0.5% against the USD. There was lingering support from PBoC’s vow in preventing large fluctuations in yuan during the prior month. On the data front, China’s services sector grew at slightly faster pace as the Caixin Services PMI rose to 50.4 in October from 50.2 in the prior month.

MYR: By the end of Friday, the USD/MY dropped 0.5% to settle near its intraday low of 4.727, taking cue from the bets that the US Fed is already at its end of rate hike cycle, coupled with the lower NFP data. The currency had recently entered into an oversold position from a technical perspective and recent development concerning the direction of US monetary policy had helped the local currency.

Other Markets

Gold: The easing labour market data prompted recession worries and pushed gold prices higher by 0.3% to USD1,993/oz.

Crude Oil: Oil prices tumbled with Brent dropped 2.3% while WTI sank 2.4% amidst concerns on demand due to possible recessionary environment may dwindle the price.

FBM KLCI: Bursa Malaysia finished the week higher at 1,450 amidst risk-on mode. Foreign investors were the net buyers with MYR210.5 million flow.

US Equities: Wall Street rallied with Dow Jones rose 0.7%, S&P500 climbed 0.9% and Nasdaq gained 1.4%.

Source: AmInvest Research - 6 Nov 2023