Snapshot Summary…

Global FX: Demand towards US dollar was sparked by hawkish message delivered by Fed officials

Global Rates: US Treasuries closed weaker as sentiment was shaky driven by comments from Fed chairman Jerome Powell overnight

MYR Bonds: MGS market rose further, driven by lower global rates but sentiment could reverse today

USD/MYR: Ringgit depreciated for the third straight days, almost reaching 4.70-level

Macro News

China: China reported its CPI for October 2023 at -0.2% y/y against consensus of - 0.1%. Meanwhile, PPI for October came out at 2.6% y/y vs -2.5% in September but a lower contraction against consensus -2.7% y/y. Continued weak price levels adds to China's growth worries and could influence PBoC to a more dovish side.

Japan: The Bank of Japan released its summary of opinion for October, signalling the decision to widen the band on the yield curve will reduce speculative moves in the market. The BoJ board members at the October meeting discussed policy options they may have to exit from the negative rate regime. One member at the BoJ signalled that the alteration to the yield curve controls would be conducive to a smooth exit from negative rates going forward.

Malaysia: Sales value of Wholesale & Retail Trade (WRT) registered a growth of 6.5% y/y to MYR142.7 billion. The positive growth was attributed by the expansion in all subsectors, with Motor Vehicles growing 7.0% y/y, Wholesale Trade at 6.9% y/y, and Retail Trade at 5.9% y/y. On a monthly basis, the sales value increased 0.1% m/m. In terms of volume index, the headline WRT posted 4.5% y/y growth, reflecting expansion of volume in all sub-sectors as well.

Fixed Income

Global bonds: US Treasuries closed weaker as sentiment was shaky, after the strong rally earlier this week, driven by comments from Fed chairman Jerome Powell overnight though other central bank officials' comments were more mixed. Powell signalled that the Fed needs to exercise caution and may move to tighten policy further, if needed, to contain inflation. UST also retreated after the USD24 billion 30Y auction garnered a weaker BTC of 2.24X vs 2.39X average in the prior 12 auctions of the same tenor. There was also some reaction from the data, where initial jobless claims for the week ended 4 November fell by 3K to 217K the prior week. The 10Y UST moved 13 bps higher overnight but remained 3 bps lower w/w at 4.62%. The level had dipped below 4.50% earlier this week. The ECB latest Economic Bulletin state that policymakers are determined to pressure inflation down to 2% in a timely manner while BoE economist Pill said more rate hikes may not be needed to lower inflation.

MYR Government Bonds: MGS market rose further, driven by lower global rates in the past week. However, overnight rise in UST yields, with the 10Y UST back above 4.60% could hamper sentiment in MGS today, in our opinion. MGS yields on benchmark papers fell 1-2 bps yesterday while IRS rates also fell by similar margins.

MYR Corporate Bonds: Ringgit corporate bonds saw more gains yesterday where we noted pickup along some AA and single-A rated names. Gains include 12/24 DRB-Hicom (A+) at 4.23%, down 2 bps, and 02/26 UEM Sunrise (AA-) at 4.58%, down 5 bps. Meanwhile, quasi names were dealt mixed yesterday despite MGS gains, where it could be that traders were cautious amid tight spreads and global market volatility.

Forex

United States: The dollar rose 0.3% after Fed officials remark last night. US Fed Chair Jerome Powell stated that the Fed may take further steps in raising interest rates as achieving price stability “has a long way to go” and that officials “are not confident” that interest rates are yet high enough to tame down inflation as needed. Other officials also voiced similar tone as St. Louis interim Fed President Kathleen O’Neil cautioned that it is “unwise to suggest that further rate hike is off the table”. Meanwhile, the lower initial jobless claims underpin the resiliency of US’s labour market, bolstering the case for further rate hikes.

Europe: The EUR shed 0.4% on higher dollar. ECB Vice President Luis de Guindos said that “we are not there yet” when asked about cutting interest rate. He also said policymakers have to be prudent and cautious as there are some risks around the outlook for inflation. The GBP fell 0.5% ahead of UK’s GDP 3Q2023 GDP data. Investors is expecting the UK’s economy to grow slower by 0.5% y/y compared to the previous quarter’s 0.6% y/y.

Asia-Pacific: Aside from the discussion on options policymakers may have in exiting the ultra-accommodative policy, the BoJ’s Summary of Opinion showed that the central bank will remain patient in maintaining negative interest rate policy and yield curve control as there is still some way to go before achieving the 2.0% inflation target. Against this backdrop, the JPY is vulnerable for further downside pressure as it hovers near the intervention level of 151-152. The CNY weakened 0.1% against the dollar after the weak data. Softer consumer prices in China suggest dwindling demand and fragile economic recovery, pressuring authorities to deploy further stimulus to prop up the economy.

MYR: The USD/MYR pair rose for the third day, partly erasing the sharp drop it had on Monday. The pair rose 0.2% to end the day at 4.693. Retail sales in Malaysia grew slower by 5,9% y/y in September 2023, down from four-months high of 6.3% y/y in the prior month. For today, the ringgit may depreciate further, taking cue from the hawkish outlook offered by Fed policymakers.

Other Markets

Gold : Despite the higher yields and dollar, gold prices managed to post some gains with 0.4% to settle at USD1,959/oz.

Crude oil : Oil prices inched higher with Brent rising 0.6% to USD80 per barrel while WTI gaining 0.5% to USD75 per barrel after US Fed Chair Jerome Powell boosted the expectations for another rate hike.

FBM KLCI: The KLCI fell 0.4% to close at 1,452 with losers outpaced gainers. Data showed foreign investors were

US Equities: Wall Street stock markets closed in the red after Fed officials struck a hawkish tone regarding its interest rate outlook. Dow Jones slipped 0.6%, S&P500 dipped 0.8% while Nasdaq fell 0.9%.

Source: AmInvest Research - 10 Nov 2023