Snapshot Summary…

Global FX: Demand was supported on Friday after the stronger-than-expected labour market data

Global Rates: Investors realign rate cut bets, prompting UST yields to surge

MYR Bonds: MGS market was seen in cautious mode with benchmark papers little changed

USD/MYR: The ringgit firmed ahead of the US NFP data after market hours

Macro News

United States : The unemployment rate in the United States decreased to 3.7% in November 2023, down from 3.9% in the previous month and surpassing market expectations. This marked the lowest unemployment rate since July. The number of unemployed individuals dropped by 215k to 6.291 million, while the count of employed individuals increased by 757k to 161.969 million. Despite a rise in the labour force (0.1 percentage points to 62.8%), the unemployment rate declined, and the employment rate rose by 0.3 percentage points to 60.5%.

Japan : The Japanese economy contracted by 0.7% q/q 3Q2023, the first decline since 3Q2022. The contraction was attributed to reduced private consumption, capital expenditures, and public investment, while net trade also contributed negatively. Elevated cost pressures and global headwinds were cited as contributing factors to the economic downturn.

Malaysia: Malaysia's unemployment rate declined to 3.4% in October 2022, down from 3.6% in the same month the previous year. The number of unemployed individuals decreased by 5.2% y/y, reaching 571k, while employment increased by 2.0% to a record high of 16.40 million. The labour force participation rate also rose to 70.1%, compared to 69.7% in October of the previous year.

Fixed Income

Global bonds: Treasuries slumped on Friday and resulted in losses for the week after the market was generally well supported earlier. Friday saw the release of upbeat November non-farm payrolls which increased by 199k against consensus of 175k. The November unemployment rate fell to 3.7% (consensus 3.9%) from 3.9% in October. However, there is a risk that Friday’s UST move could be be overdone as the October NFP was unrevised at 150k and the September increase was revised down to 262k from 297k.

MYR Government Bonds: MGS market was seen in cautious mode with benchmark papers little changed, after the market had been in a rally mode for the past few days. The market also got spooked by hints by the BOJ that it was mulling an exit from its negative rates regime. We noted short tenor MGS papers were pressured by profit taking activity, but the medium to longer parts of the curve found support.

MYR Corporate Bonds: The ringgit credit space was in a more cautious mood last Friday on signs investors were withholding additional bets after the past week’s gains, especially as the MGS market was also in a cautious trading mood. Leaving the flows was 03/32 BPMB (AAA) done at 4.08, down by 16 bps. Friday also saw debuts of 12/29 and 12/30 BGSM (AA3) at 4.40% and 4.50% respectively.

Forex

United States: The dollar index trimmed early gains to end at 104.01 on Friday. Demand towards the dollar was supported by stronger than expected labour market data, including higher non-farm payrolls, falls in unemployment rate and faster wage growth in November 2023. In addition, the consumer sentiment indicator by University of Michigan also surprised the market to the upside. This has pushed back against the expectations that the US economy is already weakening and bolstered US Fed’s narrative in delaying its rate cut plan.

Europe: Firmer dollar pressured the EUR and GBP, both posting 0.3% and 0.4% lower d/d change. Germany’s inflation was confirmed at 3.2% y/y, the same as its initial estimates and the lowest point since June 2021, which may suggest the price pressure in Europe’s largest economy is already moderating. In the UK, the expectations for the BoE to maintain its current interest rate level was solidified by its Governor Andrew Bailey hawkish tone recently.

Asia-Pacific: The disappointing Japan’s GDP data, coupled with falling consumer spending, may suggest that the slowing Japanese economy could delay BoJ’s plan in exiting its negative interest rate policy. Nonetheless, traders remained cautious towards any hint that the BoJ would do so especially after its Governor Kazuo Ueda’s discussion with policymakers on Thursday regarding options for exiting the ultraaccommodative policy. The JPY depreciated 0.6% to close at 144.95. In China, the yuan weakened 0.3% against the dollar. Confidence in the Chinese economy was further dented by Moody’s rating outlook downgrade recently, plus the mixed external trade data, signalling still shaky economic condition. The Aussie dollar was on the backfooting as well, falling 0.3% as risk-off mode prevailed.

Malaysia: Despite the weaker yuan and firmer dollar, ringgit strengthened 0.2% to close at its intraday high of 4.664. Malaysia’s unemployment rate remained flat at 3.4% in October 2023, marking the fifth consecutive months of the same reading. For today, we think that the ringgit could weaken towards 4.68-level, taking a cue from Friday’s US labour market data.

Other Markets

Gold : Gold prices dropped 1.2% as the UST yields and dollar rallied due to the undermined rate cut bets.

Crude oil: Brent surged 2.4% while WTI rose 2.7% following healthier than expected US jobs report and US plans to refill its Strategic Petroleum Reserve.

FBM KLCI: Local bourse’s closed weaker, falling 0.1% to 1,442. Foreign investors sold a net MYR35.2 millions of Malaysian shares.

US Equities: All the three major stock indices closed higher, with Dow Jones, S&P500 and Nasdaq rising 0.4%.

Source: AmInvest Research - 11 Dec 2023