Snapshot Summary…

Global Rates: Treasuries weakened on the back of upbeat non-farm payrolls

MYR Bonds: Bonds posted gains despite cautious sentiment just before the NFP release

Global FX: The greenback found support as traders focused on upside surprises in macro data releases

USD/MYR: MYR held its ground against the firm dollar

Fixed Income

Global bonds : Treasuries weakened on the back of sell down post release of upbeat non-farm payrolls which increased by 199k in November against consensus of 175k. The November unemployment rate fell 3.7% when consensus was a higher 3.9%, and down from the October level of 3.9%. The October NFP was unrevised at 150k. However, the September number was revised down to 262k from 297k. Earlier, there was support for bonds when the ADP jobs report came out at a lower 103k in November and the previous month was revised down to 106k from 113k. Also, the October JOLTS job openings were lower 8.73 million vs. the previous 9.35 million and consensus of 9.30 million. There was also support from safe-haven demand on the back the BoJ Governor Ueda remarks that the central bank has options to exit from the negative rate policy. Additional support for UST was the continued decline in crude oil prices.

MYR Government Bonds: Ringgit government bonds posted gains last week, despite some cautious sentiment just before the NFP release. There was also some apprehension after speculation the BoJ was mulling exit from the current negative rates environment. The early support for the MGS market earlier was from the drop in global bond yields - including the UST which shed nearly 20 bps last week, and Bund yields down >20 bps on speculation of ECB rate cuts next year. Aside, the reopening of MGS 04/28 at MYR5.0 billion size fetched a strong BTC of 2.736x with yield averaging 3.592%. Post tender saw MGS 04/28 down by another 4 bps to 3.55% as some players covered their short WI positions.

MYR Government Bond View: Up next in the primary market is the last auction for the year, being the 10Y MGS reopening of MGS 11/33. We expect the amount to be issued will total MYR5.0 billion, which if correct would bring the total gross issuance amount for the year to MYR185 billion. Demand should be decent due to onshore support.

MYR Corporate Bonds: Alongside the strong govvies trading, corporate bonds posted gains last week on heavier volume. At mid-week, indicative yields down 2-5 bps w/w. Average daily trading volume was about MYR890 million.

MYR Corporate Bond View: Despite the decline in PDS yields in past few weeks, our calculations of Z-scores have increased, and the increase was slanted more for shorter tenors vis-a-vis longer tenors, as well as more for higher grade GG's and AAA's vis-a-vis AA's and single-A's. Hence, we think that risk appetite remains healthy but there is caution on shorter tenor and higher grade papers, considering their tighter spreads. We note some shorter tenor GG Prasarana are hovering above longer tenors (Exhibit 2).

Forex

DXY Index: Hawkish tone from US Fed Chair Jerome Powell during the prior weekend helped investors realign their expectations on the timing of rate cuts. As a result, the greenback found support and grinded higher throughout the week. Although data released were mixed, market players were more focused on the upside surprise in the services PMI, lower-thanexpected initial jobless claims and unemployment rate, and stronger nonfarm payrolls, consumer sentiment, and wage growth data. Last Friday, the DXY index rose 0.7% to close the week at slightly above the 104-level. This week, investors will be on the lookout for November’s consumer and producer inflation data before the Fed concludes its policy meeting on Wednesday night. For now, the central bank is expected to maintain its key interest rate.

Europe: Against a firmer dollar, the EUR fell 1.1%. Eurozone’s Composite PMI remained in contractionary region for the sixth straight month, although it showed a slight improvement compared to its initial reading. Slower growth in Eurozone’s retail sales also pressured the currency. In the meantime, the GBP fell 1.3% against the USD. BoE Governor Andrew Bailey stated that interest rates are likely to remain at around “current levels” as uncertainty on inflation remains, suggesting the central bank may continue to be hawkish. This week, both the ECB and BoE will deliver their interest rate decisions. Traders will be looking for hints on the policy path moving forward.

Asia Pacific: Against the odds, the JPY managed to post sharp appreciation against strong USD at +1.3% w/w, extending the winning streak for a third consecutive week. As the currency retreats from the decades high of 152-level reached early last month due to Fed rate cut bets, JPY found further support from the intensified expectations on BoJ to exit its ultra-accommodative policy some time in 2024. Some market participants have already priced in for it to happen as soon as January 2024, according to Japan’s Overnight Index Swaps. In China, yuan weakened 0.6% w/w after rating agency Moody cut the outlook on China’s debt rating to ‘negative’ from ‘stable’ which prompted some risk averse mode, coupled with unfavourable November external trade data. In the meantime, as market players readjust their interest rate outlook, the AUD and NZD both dropped by 1.4%. The RBA’s decision in keeping its interest rate steady along with Australia’s weaker than expected 3Q2023 growth, could not provide tractions for the AUD. For the NZD, the lack of data drivers last week put the currency vulnerable against the firm USD. The SGD depreciated 0.6% to close the week at 1.342. On the data front, Singapore’s retail sales posted the first decline at 0.1% y/y for October 2023 since this year’s February.

Malaysia: The ringgit was able to hold its ground against dollar demand albeit at marginal quantum. It closed firmer by 0.2% w/w to 4.664 by the end of Friday. However, we posit that the currency could face vulnerabilities this week following the stronger US labour market data last Friday. On the data front, BNM’s international reserves rose to USD112.3 billion as at end November 2023 after three straight months of falling.

Source: AmInvest Research - 11 Dec 2023