Fixed Income & FX Research undefined

Snapshot Summary…

Global FX: The dollar firmed for a second day on mixed signals from Fed officials

Global Rates: Boost to bonds came from release of weak data comprising China trade and German industrial production

MYR Bonds: MGS market closed sideways in a tight range, driven by volatility in global markets

USD/MYR: USD/MYR rebounded after the recent sharp fall

Macro News

Euro Area: Eurozone data was on the slower side. The Eurozone's September PPI rose 0.5% m/m, in line with expectations but down from 0.7% previously, and also down 12.4% y/y (expected -12.5%; prior month -11.5%). The October Construction PMI fell to 42.7 from 43.6. Germany's October Construction PMI fell to 38.3 from 39.3. and the September Industrial Production fell 1.4% m/m (expected -0.1%; prior month -0.1%) and fell 3.9% y/y (prior month -1.5%).

China: October trade surplus reached USD56.5 billion (vs expected surplus of USD82.0 billion and previous month’s USD77.7 billion surplus). In October, imports grew 3.0% y/y (beating -4.8% consensus and the prior month’s -6.2%) but exports fell 6.4% y/y (consensus -3.3%; and the previous month’s -6.2%).

Malaysia: The Department of Statistics on Tuesday said industrial production index (IPI) fell by 0.5% y/y in September 2023, weighed down by oil and gas activities, after a 0.3% decline in August. The mining sector index fell by 5.2% in September, while the manufacturing sector returned to a marginal growth of 0.4%, after experiencing three consecutive months of declines.

Fixed Income

Global bonds: Bond markets continued to be volatile as they resumed rallying after the prior day’s losses. Boost to bonds came from release of weak data comprising China trade numbers and German industrial production. At the close, the 10Y UST shed 8 bps to end at 4.57% while 10Y bunds fell 8 bps to 2.66% and 10Y gilts fell 11 bps to 4.27%. Sentiment was also aided by strong auction of the 3Y UST where the USD48 billion sale, ahead of today’s 10Y auction, garnered 2.67X BTC and which saw indirect bidders (which include foreign central banks) surmounting to 64.6% of the sale (64.0% average past 12 auctions of the 3Y).

MYR Government Bonds: MGS market closed sideways in a tight range. Prior day’s rally was absent yesterday after global yields rose on profit taking. The market was also busy with MYR3.0 billion auction of long tenor GII (GII 05/52) which was accompanied with MYR2.0 billion private placement. However, the public tender received healthy bids where BTC was 2.08X.

MYR Corporate Bonds: Relatively better performance in the PDS market yesterday on sustained risk appetite. Traded volume was heavier at MYR636 million compared with MYR438 million the day before. There was heavy volume on GG paper 10/38 DanaInfra at 4.24%, as well as 08/31 Prasarana at 4.06%.

Forex

United States: The DXY index firmed for the second day, gaining 0.3% to 105.52. There were mixed signals from Fed officials. Minneapolis Fed Neel Kashkari (voting member) said that the Fed may have to do more to bring inflation down to 2.0%. Dallas Fed Lorie Logan (voting) communicated a similar hawkish tone, saying that inflation remains too high, and inflation seems to be trending towards 3.0% rather than 2.0% Fed’s goal. On the other hand, Chicago Fed Austan Goolsbee (voting) remarked the Fed has made significant progress in battling inflation and attention now turns to how long to keep interest rates at their current level.

Europe: Concerns regarding to growth in the region intensified after Germany’s industrial production declined 1.4% m/m during in September 2023, worse than August’s and market expectations -0.1% m/m. Also, the Eurozone’s producer inflation grew slower by 0.5% m/m for September, compared with 0.7% m/m in the prior month but in line with market consensus. Taken together, this may place less pressure on the ECB to raise rates further. The EUR ended the day at 1.070. Meanwhile, the GBP fell to 1,230. The UK house price index snapped six straight months of declines, posting gains of 1.1% m/m in September, reflecting shortage of house supply amidst high interest rates. To note, the mortgage rate in the UK rose to 8.01% in October, just shy away from all time high of 8.87% reached back in 1998.

Asia-Pacific: The CNY eased 0.1% after official data showed exports declined faster at 6.4% while imports grew 3.0%. The mixed external trade data highlights fragile and uneven recovery in Chinese economy. At the same time, the JPY weakened further to 150.37 as traders continued to be cautious against any intervention by Tokyo. On the data front, wage growth accelerated faster at 1.2% y/y, beating market consensus of 1.0% gains and previous month reading of 0.8% y/y, reinforcing BoJ’s plan in exiting ultra-accommodative policy through sustainable wage growth. The RBA raised its interest rate by 25 bps to 4.35% after four months of steady policy rate, saying that there was a risk of inflation would remain higher for longer. Although the central bank will be data dependent moving forward, taken by the market this might be the last hike of the cycle. The decision sent AUD lower by 0.8%

MYR: The USD/MYR pair rebounded and closed the day at 4.670 after the recent sharp fall. As investors’ focus shifted towards a rate hike path again, the pair could trend upwards, erasing recent gains. On the data front, Malaysia’s industrial production declined faster by 0.5% in September compared to the 0.3% decline the previous month.

Other Markets

Gold : Gold fell 0.4% to USD1,969/oz, hitting its lowest level in two weeks as safe haven demand dissipates. Investors refocused on the rates outlook amidst Fed speeches this week.

Crude oil : Oil prices sank with Brent tumbled 4.2% and WTI dropped 4.3%, taking cue from the mixed external trade data from China, reflecting demand worries and recovering oil exports from OPEC countries which eased fears on tight supply.

FBM KLCI: The local bourse FBM KLCI fell 0.1% to 1,463. Foreign investors were net buyers of MYR90.1 million Malaysian shares.

US Equities: Wall Street posted gains with Dow Jones up 0.2%, S&P500 gained 0.3% and Nasdaq climbed 0.9%, led by technology sector stocks.

Source: AmInvest Research - 8 Nov 2023