Snapshot Summary…

Global Rates: UST market closed the week on weaker footing

MYR Bonds: MGS market performance was mixed with the benchmark 3Y and 10Y MGS were seen last near 3.50% and 3.85%

Global FX: Demand for US dollar was subdued as the DXY index fell for the second straight weeks

USD/MYR: Ringgit was continued to be supported albeit performance was slightly limited

Fixed Income

Global bonds : UST market saw slightly weaker close on a weekly basis after mostly firm trading before the Thanksgiving break. Aiding sentiment for bonds was continued expectation that the Federal Reserve is at, or near, the end of its interest rate raising cycle. The minutes of the latest FOMC meeting suggest policymakers think it would be appropriate to keep rates at restrictive level for 'some time' until inflation is clearly moving down sustainably. However, markets are increasingly confident that the Fed will embark on interest rate cuts by the middle of next year in which the Fed Funds futures market is pricing a total of 100 bps cuts in 2024.

MYR Government Bonds: Despite a weak finish last Friday when short tenor MGS yields rose 1 – 2 bps, Malaysia’s government bonds remain supported. Alongside the decline in global rates, MGS yields had fallen in excess of 20 bps in the past month, but only moved within a tight 1-2 bps last week. The benchmark 3Y and 10Y MGS were seen last near 3.50% and 3.85% respectively. They were trading around 3.70% and 4.15%, respectively, in late October. There was support from economic data. Malaysia's exports declined by 4.4% y/y (Sept 2023: -13.8%) and imports declined by 0.2% y/y (Sept 2023: -11.1% y/y) to RM113.3 billion. The consumer price index (CPI) rose by 1.8% y/y in October, which is a moderation from the 1.9% increase in the month before. The latest CPI data is also lower than earlier consensus expectation by economists of 1.9%.

MYR Government Bond View: We foresee more risk of profit taking in the coming week, after the past month’s rally, and after UST levels consolidated late last week.

MYR Corporate Bonds: As MGS market consolidated, we noted signs of caution in the market, PDS were mostly supported but there was also profit taking activity taking place. Spreads along GG, AAA and AA rating segments continued to tighten last week, by about 1 - 2 bps. However, average daily volume in the PDS space (ex CPs and non-rated) fell to MYR668 million per day from MYR747 million the week before, reflecting the cautious market.

MYR Corporate Bond View: We foresee more risk of profit taking activity in the coming week. GG and AAA segments could lead the losses, reflected by dislocation of yields across select names which would lead to yield realignment.

Forex

DXY Index: The USD extended its decline as the DXY index, a measure of US dollar relative to a basket of foreign currencies, fell 0.5% to 103.40 due to expectations that the US Fed will no longer raise interest rates, coupled with contraction in manufacturing sector in the US. According to the CME FedWatch tool, market players are pricing in 99.5% probability for the FFR to stay at the current level during the upcoming 13th December FOMC meeting, and that rate cuts to start as early as the May 2024 meeting. The DXY index, however, found support from the lower initial jobless claims number.

Europe: Against the subdued USD, the EUR rose 0.2%, riding on similar sentiment that the US Fed is already at the end of its rate hike cycle. The EUR was also buoyed by improvements in Eurozone and German PMI data, suggesting the contraction in private business activity has already bottomed out. Speeches by ECB officials paint the expectations for the interest rate to plateau for some time to bring the high inflation to the central bank’s target. In his Autumn Statement, British Finance Minister Jeremy Hunt announced fiscal easing measures to prop up the economy. These include tax cuts for workers, permanent business investment incentives, rises in welfare payments, and a decrease in the rate of social security contributions for both employees and self-employed workers. Flash UK PMI data released last week also favoured the UK’s currency, pushing the GBP 1.1% higher to close Thursday at 1.253.

Asia Pacific: There was lack of data flows last week for Japan, aside from the inflation rate released on Friday. Headline inflation rate rebounded to 3.3% y/y in October 2023 from 3.0% while core inflation rate rose to 2.9% y/y from 2.8% y/y, short of 3.0% market forecast. The JPY reacted closed the week slightly away from the 150-level compared to the previous week. At the same time, the CNY firmed 0.9% as the PBoC continued to guide the currency stronger, coupled with seasonal demand from onshore corporates. The commodity-linked currency AUD surged 1.1%. Minutes of the November policy meeting showed that the RBA board believes the risk of inflation continuing above target was too high to keep rates on hold - thus, explaining the rate hike during the meeting. The board also wanted to prevent “larger monetary policy response” in coming months, given the persistence of inflation. The central bank also noted that the forecast for inflation to decline to 2-3% by the end of 2025 was based on possibly one or two more interest rate increases.

MYR: The ringgit benefitted from the lower dollar, firming up 0.1% w/w to close at 4.688 albeit the performance was slightly subdued. BNM Governor Abdul Rasheed Ghaffour said that the current level of ringgit does not reflect Malaysia’s economic fundamentals. He pointed that Malaysia’s fundamental remains favourable with robust growth, favourable market conditions, low inflation, strong external sector, and current account surplus. On the data front, Malaysia’s exports saw smaller decline in October at 4.4% y/y, less than market consensus of 5.1% decline. Also, there are less pressure for the BNM to raise interest rate to tame domestic inflation as data showed Malaysia’s price pressure continue to ease to 1.8% y/y in October compared to previous reading of 1.9% y/y.

Source: AmInvest Research - 27 Nov 2023