Snapshot Summary…

Global FX: Dollar performance continue to be on the downside on US Fed rate cut expectations

Global Rates: UST dropped to below 4.00% level while yields on Bund and Gilts also fell

MYR Bonds: Ringgit government bonds was stronger yesterday to follow the rally in global bond markets

USD/MYR: The ringgit benefitted from the US Fed rate cut expectations amidst the broad dollar sell off

Macro News

United States : Retail sales in the US unexpectedly rose by 0.3% m/m in November 2023, rebounding from a revised 0.2% fall in October. The positive figures suggest a robust start to the holiday shopping season, with notable increases in sales at food services and drinking places (1.6%), non-store retailers (1%), health and personal care (0.9%), and furniture stores (0.9%).

Euro Area: The European Central Bank kept interest rates unchanged for the second consecutive meeting, maintaining the main refinancing operations rate at a 22-year high of 4.50% and the deposit facility rate at 4.00%. The ECB also announced an early conclusion to its bond purchase scheme, with full reinvestment under the PEPP ending on June 30. The portfolio will then decrease by EUR7.5 billion per month until the end of 2024.

Japan : Industrial production growth in Japan was revised higher to 1.3% m/m from the initial flash reading of 1.0% in October 2023. This marked the second consecutive month of expansion, driven by increased production in electronic parts and devices, motor vehicles, and electrical machinery, information, and communication electronics equipment.

United Kingdom: The Bank of England, with a majority of 6-3, decided to maintain the benchmark interest rate at 5.25%, the third consecutive time at this level. This aligns with the bank's commitment to addressing inflationary pressures, despite indications of economic challenges. Three members advocated for a 25 basis points rate hike, citing a tight labour market and ongoing inflationary pressures.

Fixed Income

Global bonds: Continued strength was seen in global bond markets yesterday where notably the 10Y UST fell to below the 4.00% level when compared with it hovering near the 5.00% level in October. Impetus for the rally yesterday was not only the dovish Fed but also the ECB and the Bank of England holding their policy rates unchanged. Treasuries shrugged aside the better-than-expected US retail sales data and weekly initial jobless claims. Trading in fed funds futures market is now pricing in six rate cuts for 2024 with the first coming in March.

MYR Government Bonds: Ringgit government bonds were stronger yesterday to follow the rally in global bond markets on the heels of the Fed signals. Trading activity was also heavier despite the market also being busy with the 10Y MGS auction, which garnered firm demand at BTC of 2.21x. The 10Y MGS fell 9 bps as the 10Y UST fell to below 4.00% during the Asian session yesterday.

MYR Corporate Bonds: Corporate bonds performed stronger as well to mirror the gains in the govvies segment. Trading was also active with volume totalling MYR552 million yesterday compared with MYR401 million this day before. Notable trades include 06/24 PASB (AAA) at 3.73% and 08/35 YTLP (AA1) at 4.22%.

Forex

United States: Riding on the rate cut expectations, we saw broad dollar sell off as the DXY index extended its fall, closing Thursday at sub 102-level. But the losses were supported slightly by the unexpectedly strong retail sales figures and lower initial jobless claims.

Europe: Benefitting from the lower dollar, the EUR and GBP both surged by more than 1.0%. Further supporting the EUR was the lack of discussion relating to rate cuts by ECB policymakers during the policy meeting, in view that inflation in the region remained high. The central bank kept its key interest rates steady, and policymakers vowed to keep it at the current level for sufficiently long enough time. In the meantime, the BoE also maintained its interest rate level at 15-year high of 5.25% with 6-3 majority vote. The remaining three members voted for a further rate hike. According to the policy statement, further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.

Asia-Pacific: The Japanese yen firmed 0.7% to settle at 141.89, as investors now turned towards BoJ meeting due next week. On the data front, Japan’s industrial production and machinery orders both remained healthy and beat consensus, providing signals of decent economic growth in the country. Meanwhile, in China, the yuan strengthened 0.8% to touch a six-months high and past its 200-day simple moving average line. Chinese November economic data are due today which will include industrial production (cons.: 5.6%) and retail sales (cons.: 12.5%).

Malaysia: The ringgit firmed 0.7% to close at 4.673 and traded within the range of 4.655 and 4.674. The currency is benefitting from the lower trending dollar as the market is pricing in early rate cuts by the US Fed.

Other Markets

Gold : Gold rose 0.4% to USD2,036/oz on improved risk-on sentiment following the US Fed meeting.

Crude oil: Oil prices dropped surged by more than 3.0%, extending the previous session’s gains amidst lower dollar and after the International Energy Agency (IEA) upgraded its demand forecast for 2024.

FBM KLCI: Local bourse KLCI rose 0.6% to 1,456. Foreign investors bought a net of MYR125.3 million Malaysian shares on Thursday.

US Equities: Wall Street continued its bull-run as the Dow Jones rose 0.4%, S&P500 climbed 0.3% and Nasdaq rose 0.2%.

Source: AmInvest Research - 15 Dec 2023