Snapshot Summary…

Global FX: The DXY index dropped sharply by 1.0% to close Fed policy meeting day at 102.87

Global Rates: Bonds rallied on the back of the supportive data, and FOMC signalling

MYR Bonds: Ringgit bonds posted losses, driven by risk aversion ahead of the FOMC meeting

USD/MYR: The USD/MYR weakened 0.5% to close at 4.708

Macro News

United States : The Federal Reserve kept the fed funds rate steady at 5.25%-5.5% in December 2023, in line with expectations. Policymakers noted a moderation in economic growth and job gains, although remaining strong, and acknowledged elevated inflation.

Euro Area: Industrial production in the Euro Area experienced a decline of 0.7% m/m in October 2023. This contraction was driven by a 1.4% drop in capital goods production and 0.6% declines in both intermediate and non-durable consumer goods. Meanwhile, energy output increased by 1.1%, and durable consumer goods production rose by 0.2%.

China : In November 2023, Chinese banks extended CNY 1.09 trillion in new yuan loans, experiencing a notable increase from October's CNY 0.74 trillion. Despite this, it fell short of market expectations set at CNY 1.30 trillion.

United Kingdom: The UK economy contracted by 0.3% in October 2023 compared to September, reversing the growth observed in the previous two months. The decline was primarily driven by a 0.2% contraction in the services sector, with notable declines in information and communication. Output in consumer-facing services also fell by 0.1%. Additionally, production declined by 0.8%, mainly attributed to drops in manufacturing output and construction output, the latter affected partly by adverse weather conditions. Over the three months leading to October, the British GDP remained stagnant.

Fixed Income

Global bonds: Bonds went on a rally overnight on the back of the supportive data, but especially after the FOMC meeting which markets view the Fed as sounding less hawkish than earlier expected. The data in question was the UK GDP contracting by 0.3% m/m in October 2023, and led by contraction in the services sector. Also, the US reported PPI at 0.9% y/y in November vs. 1.2% in October. As for the FOMC, on top of holding the FFR, the Fed updated its economic forecasts which included lower inflation outlook for this year and next, plus a median estimate of three interest rate cuts next year when the last estimate was for two cuts. Fed chief Powell then said the committee discussed steps on when to reverse its tight monetary policy.

MYR Government Bonds: Ringgit bonds posted losses, driven by risk aversion ahead of the FOMC meeting and a weakening Ringgit which went over the 4.7000 level. MGS/GII yields saw a 2-6 bps increase, with the 10Y MGS last quoted at 3.86%/3.84% in the WI market versus the prior day's quotes nearer to 4.82%/4.78%. The 10Y MGS 11/33 reopening auction closes today, size is MYR4 billion with additional MYR1 billion private placement.

MYR Corporate Bonds: Ringgit corporate bonds were subdued with yields moving mixed yesterday, coinciding with the weakness in the govvies segment. However, amidst the subdued trading, the more heavily PDS papers were traded steadier. These comprised 05/29 Imtiaz (AA2) at 4.18% (-1 bp) on MYR60 million volume, and 04/31 SEB (AAA) at 4.07% (-2 bps) also on MYR60 million volume.

Forex

United States: The DXY index dropped sharply by 1.0% to close Fed policy meeting day at 102.87, the sharpest drop in nearly a month. The central bank maintained its current policy rates level while updating the dot plot projections, to include three rate cuts in 2024, confirming the market view of an imminent rate cut. According to the CME FedWatch, the market is now pricing in 74.7% chance of a 25 bps rate cut in March 2024 meeting, significantly higher than 39.7% pre-Fed meeting.

Europe: As the dollar weakened, the EUR climbed 0.7%. With the Fed meeting now concluded, focus turns to a series of other central banks meeting, including the ECB and the BoE. While the Fed has already made up its mind on rate cut possibilities, we think that it would be trickier for the ECB and BoE to signal the same as inflation conditions in both Eurozone and in the UK are much stickier. The GBP also gained by 0.4%.

Asia-Pacific: The yen surged 1.8% to 142.89, benefitting from the expectations that the BoJ may exit its ultra-accommodative policy soon, coupled with rate cuts by the Fed in 2024. On the data front, Tankan survey for large manufacturers showed further improvements in sentiments among firms in 4Q2023 and beating market consensus. In China, the onshore CNY firmed slightly by 0.1% ahead of the Fed meeting overnight.

Malaysia: The USD/MYR weakened 0.5% to close at 4.708 after it skyrocketed and touched intraday high of 4.785. Following the rate cut signal by the US Fed, we think that there is downside potential for the USD/MYR pair for today, with resistance pinned at 4.596 – 4.628.

Other Markets

Gold : Gold surged 2.4% to USD2,028/oz, topping the USD2,000/oz level after Fed meeting.

Crude oil: Oil prices dropped rose with Brent chalked up 1.4% and WTI gained 1.3% as data showed bigger-than-expected weekly withdrawal from US crude storage, alongside with better sentiment coming from the US Fed.

FBM KLCI: Local bourse KLCI rose marginally by 0.1% to 1,448. Foreign investors sold a net MYR44.4 million flow of Malaysian shares on Tuesday.

US Equities: Wall Street posted another day of outperformances, with the Dow Jones, S&P500, and Nasdaq rising 1.4%.

Source: AmInvest Research - 14 Dec 2023