Fixed Income & FX Research undefined

Snapshot Summary…

Global FX: DXY index tumbled sharply following the US CPI data

Global Rates: UST market rallied overnight with yields dropping 13 – 22 bps across tenors

MYR Bonds: Ringgit government bonds started the week on cautious note ahead of key global economic data

USD/MYR: MYR weakened as investors were on the side-line ahead of US CPI data

Macro News

US: US headline CPI was unchanged on a monthly basis in October vs +0.4% the prior month but registered 3.2% y/y. Gasoline prices fell 5.0% (+2.1% in September), which offset the continued increase in the cost of rental accommodation. Excluding food and energy components, core CPI increased 0.2% amid the higher costs for rents. Core CPI had risen by 0.3% for two straight months.

Australia: Amid the current RBA hike cycle, Australia's NAB Business Confidence index fell to -2 in October from a revised 0% in September. This was below market consensus of 1 and the lowest since May. The Westpac Consumer Sentiment index fell 2.6% in November, from 82 to 79.

Eurozone: The ZEW Indicator for Economic Sentiment in Eurozone unexpectedly improved to 13.8 in November 2023 compared to market consensus of 6.1 and much better than October’s reading of 2.3. It marked the highest reading since February this year.

Fixed Income

Global bonds: Release of the October US CPI sent the UST to rally overnight. The 10Y UST shed almost 20 bps while the 2Y fell just over 20 bps. The fed funds futures market then no longer pricing in additional rate hikes and expects additional rate cut for 2024, bringing the total to four expected cuts from three cuts, which is a stark difference compared to Fed’s expectations of only two rate cuts. Meanwhile, the House has passed a resolution to fund government through 19 January and 2 February. Yields on Germany’s Bund and UK’s Gilt also dropped, in tandem with UST yields movements.

MYR Government Bonds: Benchmark MGS papers weakened but on thin volume traded. Ringgit bonds kicked off the week on a cautious note, participants shifting the side-lines before the US CPI release. The cautious sentiment was further driven by a weaker Ringgit and increase in UST yields over the prior two sessions. Meanwhile, BNM conducted the MYR5.0 billion 3Y GII auction (no PP), which garnered weak demand at 1.51x BTC, and yield averaging at 3.622%.

MYR Corporate Bonds: There was razor thin trading volume in the ringgit corporate bond market yesterday. On top of cautious risk appetite ahead of the US CPI data, there was also a lack of interest. Amid the thin flows, notable trades include that of 01/33 Edra (AA3) at 4.56%, and 07/33 Edra at similar 4.56%.

Forex

United States: Post October CPI release saw dollar demand dwindled, sending DXY index lower by 1.5% to near 104-level. Investors are calling for the Fed to be already done with its rate hike cycle as data showed inflation is trending down towards inflation target.

Europe: The EUR and GBP strengthened as the USD fell. This was amid firm data where the November ZEW Economic Sentiment for the Eurozone and Germany were stronger than expected. In the UK, the September employment report showed wage growth was higher than expected. The EUR and GBP both posted gains of 1.7% and 1.8% by the end of the day.

Asia-Pacific: PBoC set the CNY fixing at 7.1769 per dollar, firmer than the previous fix of 7.1768, or firmer vs 7.1771 the day prior, and sustaining its signalling of support for the currency. However, sentiment for CNY remained fragile due to the downbeat China economic growth expectations. Reuters cited China state-owned newspapers’ suggestion of a cut in RRR to boost liquidity. PBoC is due to exercise CNY850 billion loan offers under its medium-term lending facility (MLF) today. JPY gained ground amid dollar pressure, and JPY support further propels the currency stronger after the release of US CPI late yesterday. AUD was supported ahead of the US data, though domestic data was rather on the downside, comprising weak business conditions and consumer confidence numbers.

Malaysia: USD/MYR pair rose 0.3% to close at 4.717 after trading within range of 4.701 – 4.725 as investors took to the side-line ahead of US inflation data after market hours. Today, we anticipate the MYR to firm up riding on market’s sentiment of Fed’s already done with its rate hike.

Other Markets

Gold : Gold rose 0.9% to settle at USD1,964/oz, aided by the tame US inflation data.

Crude oil : As the EIA raised its demand forecasts for 2023 and 2024 but also noting that supply was on the rise, up 320,000 bpd last due to output from the US and Brazil. Brent price was held steady at USD82 per barrel while WTI price was at USD78 per barrel.

FBM KLCI: Though Asian FX saw weak trading yesterday, regional stock markets were supported. This shored up support for KL equities, with the FBM KLCI ended 0.5% higher to close at 1,452, aided by interest on large cap stocks.

US Equities: US stocks rallied post CPI release. The Dow rose 1.4% and the S&P500 strengthened by 1.9%.

Source: AmInvest Research - 15 Nov 2023