Snapshot Summary…

Global Rates: Treasuries fell due to hawkish comments from the Fed’s Jerome Powell

MYR Bonds: MGS market closed firm despite late weakness in UST

Global FX: Last week was marked by USD strength amid comments by Powell

USD/MYR: Ringgit closed stronger after caught in oversold position

Fixed Income

Global bonds : US Treasuries (UST) closed weaker last week, though other developed market (DM) bonds closed mixed. The week started with profit taking activity, which reversed the rally post release of weak October nonfarm payrolls. Weakness continued rest of the week due mainly to hawkish turn from Fed chairman Jerome Powell, who said the Fed needs to exercise caution and may move to tighten policy further, if needed, to contain inflation. Powell said achieving price stability “has a long way to go” and that Fed officials “are not confident” that interest rates are yet high enough to tame down inflation.

MYR Government Bonds: MGS closed stronger last week. The 10Y MGS rose 4 bps on Friday, to close at 3.89%, but was down 9 bps w/w. Comments from Fed's Powell last Thursday when he said the Fed would not hesitate to hike interest rates drove the MGS weaker but earlier last week, MYR bonds had shown strength, aided by decline in UST yields after the release of weak US non-farm payrolls number for October and downward revisions in August and September. The government issued MYR3.0 billion in an auction of long tenor GII (GII maturing May 2052), which was accompanied by an additional MYR2.0 billion issuance via a private placement. The MYR3.0 billion public tender portion received healthy incoming bids from investors to the tune of MYR6.2 billion, translating into a bid-to-cover (BTC) ratio of 2.08 times.

MYR Government Bond View: We anticipate a cautious start for the week on the back of the latest Fed officials’ narrative and US CPI release. Shortterm sentiment may also be cautious in the primary segment. This week we have MYR5.0 billion auction of the 3Y GII maturing 09/26 while we also await 7Y GII and 5Y MGS auctions up next.

MYR Corporate Bonds: Amid better performing MGS market and healthy risk appetite, Malaysia’s corporate bonds mostly rallied, though we also noted late profit taking activity. Indicative PDS yields were mostly down 5- 10 bps last week.

MYR Corporate Bond View: Based on past month’s credit spread movement, Our RV analysis sees risk of more profit taking; especially GG Prasarana and Danainfra with >7Y maturities.

Forex

DXY Index: Last week was marked by dollar strength. Focus was turned towards Fed speeches, especially by Fed chair Jerome Powell on two separate occasions. Last Thursday, 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. By the end of Friday, the DXY was up 0.8% w/w to 105.86.

Europe: Amid the USD strength, both EUR and GBP fell. This was despite also hawkish ECB when policymaker Isabel Schnabel said the central bank cannot close the door on further rate hikes as the “last-mile” of disinflation can be the toughest part. Further pressuring the EUR was the final data for Eurozone’s Composite PMI at 46.5 for October, in line with initial estimate but lower than previous month’s 47.2. BoE governor Andrew Bailey pushed back against discussion of cutting interest rate as there are still upside risks to inflation especially with regards to energy costs. Last Friday's data was UK 3Q2023 GDP at zero percent q/q but beating estimate of -0.1% q/q.

Asia Pacific: Asian FX were mostly subdued by the firm USD, where CNY eked out 0.1% w/w loss. CNY remained pressured by expectations of monetary easing by PBoC after recent releases of weak macroeconomic data. These include data where exports fell 6.4% y/y in October. On a more positive side, PBoC governor Pan Gongsheng said the central bank will prevent CNY overshooting and one-sided bets. Japanese yen could not find support against speculative selling, pressuring the yen to weaken 0.6% w/w to 151.35. This is on the back of expectations for the BoJ to remain persistent in maintaining negative policy rate. AUD/USD fell 2.3% w/w. The RBA Statement on Monetary Policy signalled the policy rate could peak at 4.50% and decline to 3.50% by end of 2025. Last week the RBA raised its Cash Rate by 25 bps to 4.35%, after four months of hold, and left open the option for higher rates to fight inflation.

MYR: The currency recently entered an oversold position from a technical perspective amid recent developments concerning the direction of US monetary policy. On the data front, Malaysia’s industrial production declined faster by 0.5% in September compared to the 0.3% decline the previous month. Last Friday saw USD/MYR up 0.3% but is down 0.4% w/w to close at 4.709, down from above 4.720 a week prior. The steady US dollar on hawkish tone by Fed's Powell left the ringgit weaker on Friday. This did not pare early week gains for the ringgit, which benefitted from the dollar dip after the prior week's release of the weak US jobs report.

Source: AmInvest Research - 14 Nov 2023