AmInvest Research Reports

Fixed Income & FX Research - 1 Dec 2023

AmInvest
Publish date: Fri, 01 Dec 2023, 10:27 AM
AmInvest
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Snapshot Summary…

Global FX: Even though the PCE inflation data came in-line with expectations, the dollar may have benefitted from month end demand and short covering

Global Rates: Traders took profits in the UST market overnight, ahead of the monthly closing

MYR Bonds: Large flows were seen in the MGS/GII space as month-end demand was met by profit taking activities

USD/MYR: The ringgit closed lower on profit-taking and the firmer dollar

Macro News

United States: The annual PCE inflation rate in the US eased to 3% in October 2023, the lowest since March 2021, matching forecasts. The monthly PCE remained flat, the weakest reading since July 2022, compared to a 0.4% rise in September and August. Annual core PCE inflation, excluding food and energy, slowed to 3.5%, and the monthly rate eased to 0.2%.

Euro Area : The Euro Area's inflation rate decreased to 2.4% y/y in November 2023, the lowest since July 2021, below the market consensus of 2.7%. The core rate, excluding volatile items, also cooled to 3.6%. Energy costs dropped by 11.5%, and inflation rates eased for services, food, alcohol, tobacco, and non-energy industrial goods. On a monthly basis, consumer prices fell by 0.5%, the largest decline since January 2020.

Japan : Japan's industrial production increased by 1.0% m/m in October 2023, surpassing market expectations of 0.8% and accelerating from a 0.5% growth in the previous month. This marks the second consecutive month of expansion, driven by higher production in electronic parts and devices, motor vehicles, electrical machinery, and information and communication electronics equipment.

China : China's official NBS Manufacturing PMI declined to 49.4 in November 2023, from October's 49.5, missing expectations of 49.7. This marks the lowest reading since June, signalling the need for increased government support amid weak demand and a property downturn. New orders and foreign sales contracted at a faster rate, while output expansion slowed.

Malaysia : From January to September 2023, Malaysia recorded nearly 1.5 million tourist arrivals from China and India, according to Tourism, Arts, and Culture Minister. During this period, tourist arrivals from China reached 1.02 million, representing a 42.2% recovery rate, while Indian tourist arrivals stood at 472,479, with an 87.6% recovery rate compared to the same period in 2019.

Fixed Income

Global bonds: Traders took profits in the UST market overnight, ahead of the monthly closing and despite the PCE coming in line with forecasts. In the month of November, UST yields fell 40-50 bps on expectations the Fed may be done hiking and is set to cut rates extensively next year. News from OPEC+ is that Saudi Arabia will maintain its reduced production level and overall output will be decreased by almost another 1 million bpd in 1Q2024, which pressured bonds, though crude oil prices fell as oil traders foresee actual additional cuts may be less than the additional pledge.

MYR Government Bonds: Large flows were seen in the MGS/GII space as buying on month-end demand was met with profit-taking activities ahead of the US PCE data release. Ringgit bond yields eased 1-2bps at closing though the ringgit weakened against the greenback, snapping three consecutive days of gains.

MYR Corporate Bonds: Mostly busy and strong trading in ringgit corporate bonds was detected yesterday though we also noted some profit taking activity also occurring. Traded volume was higher at MYR964 million. Heavier trades include those on the AA curves such Imtiaz, Ranhill Solar, and edotco, while on the AAA segment we saw 01/38 PLUS which fell 1 bp to 4.40% on MYR30 million volume and 04/24 Aman Sukuk at 3.59% (-7 bps) on MYR90 million flows.

Forex

United States: The dollar firmed up to near 103.50 during late US session while UST yields rose. Even though the PCE inflation data came in-line with expectations, the dollar may have benefited from month end demand and short covering.

Europe: The euro fell as the dollar got some support, as well as pressured by data. Eurozone's flash November CPI fell to 2.4% y/y (consensus 2.7%; last 2.9%) and its flash November Core CPI was up 3.6% y/y (expected 3.9%; last 4.2%). The October Unemployment Rate remained at 6.5%, as expected.

Asia-Pacific: Yesterday’s data included China's November Manufacturing PMI declining to 49.4 from 49.5 previously (consensus 49.7) and Non-Manufacturing PMI down to 50.2 from 50.6 (consensus 51.1). Also, Japan's October Industrial Production rose 1.0% m/m (consensus 0.8%; last 0.5%) and its October Retail Sales rose 4.2% y/y (consensus 5.9%; last 6.2%). Despite a weak USD during the Asian session, the CNY was down due to the weak PMI data. Australia's October Building Approvals rose 7.5% m/m (consensus 1.4%; last -4.0%) but down 6.1% y/y (last -20.9%).

Malaysia: The ringgit closed lower on profit-taking and a firmer dollar yesterday, after three consecutive days of gains. USD/MYR rose 0.2% to close at 4.663.

Other Markets

Gold : Gold prices fell as the dollar firmed. The price of the metal fell 0.4% overnight.

Crude oil: Oil prices fell though OPEC+ plans more output cuts. The new plan is for additional cuts of 600-700K bpd on top of already pledged beforehand cuts of just over 1 million bpd. However, oil traders foresee the actual additional cuts may instead be nearer to 500K bpd.

FBM KLCI: Alongside regional gains, FBM KLCI index increased 0.46% to close at 1,452.74. The index gained 0.73% in November from 1,442.14 on the last day in October.

US Equities: Amid the cooling inflation data, the Dow Jones rallied (up 1.5%), and the S&P500 rose 0.4% but the tech heavy Nasdaq fell by 0.2%.

Source: AmInvest Research - 1 Dec 2023

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