Fixed Income & FX Research undefined

Snapshot Summary…

Global FX: DXY index started the week on weaker note, reflecting the market’s bets that the US Fed is already at the end of rate hike cycle

Global Rates: US Treasuries closed rangebound while Bund and Gilt markets saw slightly weaker sentiment

MYR Bonds: Malaysia government bonds were traded sideways while volume traded in PDS market was heavy at MYR788 million

USD/MYR: Ringgit firmed amidst broad USD weakness and stronger Asian currencies

Macro News

Euro Area: In September 2023, construction output in the Euro Area declined by 0.3% y/y, marking a second consecutive month of contraction, primarily driven by a decrease in building activity (-0.3%). Civil engineering works' growth slowed to 2.5% from 2.8%. On a monthly basis, there was a partial recovery, with construction output expanding by 0.4%, rebounding from a 1.1% drop in August.

China: The People's Bank of China (PBoC) maintained lending rates during the November fixing, keeping the one-year loan prime rate (LPR) at 3.45%, a record low, and the five-year rate at 4.2%. This decision aligns with the central bank's cautious approach amid mixed economic activity in October, with challenges from the property sector and a weakening yuan, limiting the scope for extensive monetary easing.

Malaysia: Malaysia's total trade declined by 2.4% y/y in October 2023 (September 2023: - 12.6% y/y) to RM239.5 billion (October 2022: RM245.5 billion), with exports declined by 4.4% y/y (Sept 2023: -13.8%) to RM126.2 billion and imports declined by 0.2% y/y (Sept 2023: -11.1% y/y) to RM113.3 billion. The trade surplus narrowed to RM12.9 billion (Sept 2023: RM24.4 billion).

Fixed Income

Global bonds: Longer dated US Treasuries modestly outpaced shorter tenors resulting in a mixed and rangebound close overnight. Longer tenor UST papers were supported by strong demand at the 20Y UST auction, where the USD16 billion sale garnered 2.58x BTC vs 2.59x at the previous sale of the tenor. The market still awaits the latest FOMC meeting minutes. Meanwhile, UK and Germany's government bonds weakened slightly with each of their 10Y papers closing 2 bps higher. ECB policymaker Wunsch said the interest rate should be unchanged at the December and January meetings, but hikes thereafter should not be ruled out.

MYR Government Bonds: The local bond market was seen sideways due to a lack of drivers. Still, expectations that BNM and Fed will hold rates supported the MGS market and we noted bids were in for yield pickup. Steady MYR also supported bonds with suspected offshore flows into short tenors.

MYR Corporate Bonds: Corporate bond market saw gainers outpacing losers yesterday. Traded volume was heavy at MYR788 million. Notable trades include MYR107 million on 12/31 MBSB (A3) at 5.02% and MYR40 million on 08/26 Jambatan Kedua (GG) done at 3.67%.

Forex

United States: The USD started the week on weaker note, falling 0.5% overnight to close at its lowest level in more than two months as market largely believe the US Fed is already at the peak of its rate hike cycle. According to the CME FedWatch Tool, investors are pricing in no rate hike for the upcoming December meeting. Though there was lack of data drivers on Monday, investors are looking forward to the November US Fed meeting minutes for further guidance. This week will be a shortened week for the US market as it will be closed on Thursday due to Thanksgiving Day holiday.

Europe: Against the softer USD, the EUR rose 0.2% to hit its highest level since August 2023 at 1.094, while the GBP climbed 0.3% to 1.251, riding on the sentiment of the US Fed is already finished raising its interest rate. On another note, Moody’s kept Italy’s sovereign debt rating at Baa3, one notch above the junk, while upgrading its outlook from negative to stable. The rating agency also upgraded Portugal’s longterm issuer rating from Baa2 to A3.

Asia-Pacific: The USD/JPY dropped further to below 149-level amidst broad USD weakness. Although, the drop may be contained as Japan’s GDP reading last week prompted to growth concerns, posing challenges for BoJ’s plan in rolling back its decade long accommodative policy. Meanwhile, the CNY firmed 0.7%, also benefiting from the downside in the dollar while reacting mutely from the central bank decision in keeping its lending rate unchanged on Monday. In addition, the stronger PBoC guidance coupled with corporates rushed to convert their dollars to local currency.

Malaysia: In line with the firmer Asian currencies, the ringgit strengthened 0.3% to close at 4.668 and was traded within the range of 4.662 and 4.683. Malaysia’s external trade saw slower decline in October with exports contracted 4.4% y/y (September 2023: -13.8%) while imports declined 0.2% y/y (September 2023: 11.1%). This translates to narrower trade surplus of MYR12.9 billion from MYR24.4 billion.

Other Markets

Gold : Gold price edged lower to USD1,978/oz as investors focus on US Fed meeting minutes for cues on interest rate path.

Crude oil: Oil prices rose with WTI surging 2.3% and Brent gaining 2.1% after news flows showed that the OPEC+ producer countries are set to consider whether to make additional supply cuts when the group meets early next week.

FBM KLCI: The local bourse’s KLCI ended lower at 1,457 in the absence of buying interest amidst mixed regional performances. Foreign investors only bought a net MYR6.5 millions of Malaysian stocks on Monday.

US Equities: Wall Street closed higher with Dow Jones rising 0.6%, S&P500 climbing 0.7% and Nasdaq expanding 1.1%.

Source: AmInvest Research - 21 Nov 2023