Snapshot Summary…

Global FX: The dollar index rebounded slightly following the release of US Fed meeting minutes

Global Rates: UST posted modest gains after FOMC meeting minutes, in tandem with that of the Bund curve

MYR Bonds: Government bonds were supported following gains in the UST the day before

USD/MYR: Local currency continue its strengthening trend amidst wider trading range

Macro News

United States: Sales of previously owned homes in the USD dropped by 4.1% in October 2023 to a seasonally adjusted annualised rate of 3.79 million units, the lowest since August 2010. This decline, attributed to a persistent housing inventory shortage and elevated mortgage rates, reflects challenges in the real estate market.

Euro Area: The European Central Bank (ECB) expressed concern about the struggling commercial property sector in the eurozone, anticipating potential challenges for years. A report highlighted the unravelling property boom in countries like Germany and Sweden, attributing it to economic weakness and high interest rates. This downturn poses risks to banks and investors that supported the sector, with commercial property prices facing profitability and business model challenges over the past year.

Malaysia: The Ministry of Investment, Trade, and Industry is optimistic that local car manufacturers will produce the first national electric vehicle (EV) by 2025. The Investment, Trade, and Industry Minister stated that local car makers are actively engaged in research and development (R&D), including investments toward realising the country's inaugural EV. According to the minister, the progress appears achievable, with national car companies indicating their commitment to meeting the 2025 goal.

Fixed Income

Global bonds: US Treasuries closed with a minor slide in shorter tenor yields after the minutes of the recent FOMC meeting offered little fresh guidance in policy direction. Policymakers agreed they were in position to tread 'carefully' on whether to hike rates gain, suggesting incoming data would provide evidence whether policy is sufficiently tight to lower inflation. However, officials also suggested it would be appropriate to keep rates at restrictive level for 'some time' until inflation is clearly moving down sustainably. Bunds posted modest gains overnight. European Central Bank Governing Council member Francois Villeroy de Galhau said the central bank will likely keep rates at 4% for a few quarters and wind down its bond-buying portfolio earlier than planned; allaying expectations of faster-than-expected policy loosening. Similar note was heard from Bank of England officials, who told Parliament that it will take some time to bring inflation back to the 2% target.

MYR Government Bonds: Government bonds were supported following gains in the UST level the day before after the 20Y primary tender fetched firm demand (no long tail as per previous tender). MGS yields fell by 1 - 2 bps across the curve as players continued to hunt for yield pickup. Nonetheless, profit takers remain to be seen ahead of the year-end closing.

MYR Corporate Bonds: Mixed trading on ringgit corporate bonds was noted yesterday despite the better sentiment in the govvies market. Traded volume was MYR922 million compared with MYR788 million the day before. Heavier flows were seen on papers such as 09/29 edotco (AA+) at 4.22% and longer dated 06/47 Tenaga (AAA) at 4.75%.

Forex

United States: The dollar index consolidated recent losses and rebounded by 0.1% overnight following the release of US Fed’s November meeting minutes. Policymakers said that inflation remained well above their target but noted that rates would only need to be raised if new data coming up showing “insufficient progress” on alleviating inflation pressure. The minutes also showed that members did not even discuss when the central will start cutting interest rates. This is a stark difference compared to what the market is pricing, where the rate cut is expected to happen in the May 2024 meeting.

Europe: The EUR fell 0.3% to close at 1.091 against the firmer USD. This is despite ECB’s President Lagarde warning against a premature end to inflation-fightingpolicy. However, the GBP climbed 0.3% to 1.254. BoE Governor Andrew Bailey said interest rates will need to stay high for some time despite the recent drop in inflation, and emphasised that it is far too early to be thinking about rate cuts.

Asia-Pacific: Amidst lack of data drivers, the JPY held steady at around 148.39. Recently, Japanese Finance Minister Shunichi Suzuki commented that now is a oncein-a-lifetime chance to beat the deflation problem, hinting towards the possibility of BoJ reversing its ultra-accommodative policy. In China, the yuan firmed further by 0.4% to 7.141, extending gains to its highest level in nearly four months. Onshore companies continue to increase dollar selling and become more cautious in buying USD. The PBoC set the daily fixing at 7.1406, firmer than Bloomberg survey of 7.1682.

Malaysia: Ringgit strengthened 0.2% to settle at 4.657 after it was traded within a range of 4.646 and 4.668. As the dollar strengthened overnight, we think the ringgit may be vulnerable to the downside today. However, it could be more of a short-term trend as the longer-term bias is favouring for the ringgit to firm up.

Other Markets

Gold : Gold prices surged 1.0% but still below USD2,000/oz level as the dollar and global yields fell.

Crude oil: Oil prices were mixed as Brent rose 0.2% while WTI fell 0.2% as investors were cautious ahead of OPEC+ meeting on Sunday.

FBM KLCI: The local bourse’s KLCI rose 0.4% to 1,463 with gainers were seen on industrial products & services, technology, and health care. Foreign investors were the net buyers of Malaysian shares with MYR232.7 million inflow.

US Equities: Wall Street closed lower with Dow Jones and S&P500 both falling 0.2%.

Source: AmInvest Research - 22 Nov 2023