Snapshot Summary…

Global FX: Dollar index rebounded on Friday after mixed Fed speeches and gloomy economic data

Global Rates: Longer part of the UST curve was supported last Friday but the front and belly of the curve weakened

MYR Bonds: The MGS market was mixed after the rally during earlier in the week

USD/MYR: Ringgit firmed slightly by 0.1% amidst mixed regional currencies performance

Macro News

United States: The S&P Global Flash US Manufacturing PMI declined to 48.2 in December 2023, marking a four-month low and indicating a sharper deterioration in the manufacturing sector. This decline is attributed to contractions in output, new orders, employment, and stocks of purchases. Additionally, supplier delivery times improved significantly, reflecting weaker demand for inputs and increased material availability. Manufacturers reduced input buying at the fastest rate since June, opting to cut costs and work through existing stocks to meet new order requirements.

Euro Area: The IHS Markit Eurozone Manufacturing PMI remained unchanged at 44.2 in December 2023. This reflects ongoing subdued conditions in the manufacturing sector, with output falling for a ninth consecutive month and job losses continuing at a rate among the highest since 2012. Purchasing activity saw a steep decline, resulting in the largest fall in input inventories since November 2009. Input prices decreased for a 10th month, and selling prices declined for the eighth time. However, business sentiment improved to the highest level since May.

United Kingdom: The S&P Global/CIPS UK Services PMI increased to 53.7 in December 2023 from 50.9 in the previous month. This marks the second consecutive expansion in the British services sector, indicating a revival in consumer demand, particularly in financial services and technology. Despite cost-of-living pressures, tighter budgets, and a restrictive policy stance by the Bank of England, service providers expressed optimism about business conditions in the next year.

Japan: The Jibun Bank Japan Manufacturing PMI declined to 47.7 in December 2023, marking the seventh consecutive month of contraction in factory activity. This indicates weak demand and price pressures, with the steepest contraction since February. Output and new orders shrank faster, especially in new export orders, and employment remained unchanged. Purchasing activity decreased at an accelerated pace, while delivery times lengthened.

Fixed Income

Global bonds: Longer part of the UST curve was supported last Friday by weak economic data but the front and belly of the curve weakened on mixed comments from Fed officials. Data include US industrial production coming in as expected at 0.2% m/m increase but the October growth rate was revised down to -0.9% from -0.6%. The Empire State manufacturing index was at -14.5 in December vs 3.0 consensus and down from 9.1 in November. In Fed-speak, NY Fed’s Williams told CNBC that the Fed is not talking about rate cuts, which is contrary to what Fed chief Powell signalled last week. In Europe, several ECB officials said there was no discussion for rate cuts, echoing President Lagarde.

MYR Government Bonds: The MGS market was mixed after the rally earlier in the week. Weakness during Friday’s Asian session in the UST market also sent the MGS weaker. The 10Y MGS was sent 1 bps higher on Friday to close at 3.74%.

MYR Corporate Bonds: Mostly gainers were seen in the ringgit corporate bonds space on Friday, as the credit market lagged the govvies weakness. Notable trades include realignment on 01/36 PLUS (AAA) at 4.11% (-21 bps) and 01/37 01/36 PLUS (AAA) at 4.16% (-10 bps).

Forex

United States: Though it completed its soft post-FOMC week, the dollar rebounded firmer on Friday, mainly directed by NY Fed’s Williams who pushed back against the market's rate cut expectations by saying policymakers are not discussing rate cuts yet.

Europe: The euro fell against a firmer US dollar. The euro was also pushed back by expectations that the ECB will follow with rate cuts though there was a lack of strong dovish signals from Europe’s policymakers. ECB Joachim Nagel said that the central bank has probably concluded its hiking cycle but it is still too early to consider cutting interest rate. The pound also fell versus the firm dollar, even after the support from UK’s S&P Global Composite PMI rising to 51.7 in December from November's final reading of 50.7.

Asia-Pacific: The global arena saw S&P Global PMIs for December showing a mix of worsening manufacturing levels but more positive services numbers. This held back some of the regional currencies. However, CNY was aided by exporters converting into the local currency ahead of the year end payments including employee bonuses. Aside, the PBOC made a record monthly net liquidity injection of CNY800 billion and it left the 1Y medium-term lending facility unchanged at 2.50%, as expected. On the data front, mixed China’s economic data could not convince investors that China’s economy is making significant progress in its recovery.

Malaysia: There was only a modest rise in the ringgit last Friday. Markets slowed down ringgit buying after the recent rally, but also because there was some reversal from dollar weakness the same time. The USD/MYR pair shifted 0.1% lower to close at 4.669.

Other Markets

Gold: Gold backed down 0.8% to USD2,020/oz amid mixed financial market movements last Friday

Crude oil: Crude oil prices rose slightly, still lifted by help from the dovish Fed, as well as expectations by the IEA that global consumption will rise by 1.1 million bpd in 2024. Brent edged lower by 0.1% while WTI fell 0.2%.

FBM KLCI: Amid steady risk appetite, the FBM KLCI rose slightly to end the day at 1,462 up from prior day's closing of 1,456.

US Equities: It was a mixed close for US stocks last Friday. Profit taking after recent gains occurred after comments by NY Fed’s Williams.

Source: AmInvest Research - 18 Dec 2023