Snapshot Summary…

Global FX: The dollar index fell as markets continued to bet that the Fed will cut interest rates next year

Global Rates: Major bonds markets were supported by BoJ persistence of a negative interest rate policy and Germany eyeing lower issuances next year

MYR Bonds: Ringgit sovereign bonds saw heavier volume but yields were little changed

USD/MYR: The ringgit was supported alongside the broad US dollar weakness

Macro News

Euro Area : The Euro Area's annual inflation rate decreased to 2.4% in November 2023, the lowest since July 2021, down from 2.9% in October 2023. The decline was attributed to slower price increases in services, non-energy industrial goods, and food, alcohol, and tobacco. Energy prices fell slightly more during the period. The annual core inflation, which excludes energy and certain food items, was confirmed at 3.6%, the lowest reading since April 2022.

Japan : The Bank of Japan (BoJ) maintained its key short-term interest rate at -0.1%, the 10Y bond yield target at around 0%, and the loose upper band of 1.0% for longterm government bond yields in its final meeting of the year. The decision was unanimous, with the central bank expressing its commitment to patient monetary easing amid high uncertainties domestically and internationally.

Malaysia : Malaysia's exports declined by 5.9% y/y to MYR 122.1 billion in November 2023, marking the ninth consecutive month of contraction. The drop was driven by a 6.7% contraction in the manufacturing sector, particularly in electrical & electronic products, chemical & chemical products, and optical & scientific equipment. Agriculture sectors also decreased by 5.5%, while mining sectors grew by 0.5%. Exports to major trading partners, including Singapore, China, the US, Japan, and the EU, experienced declines during the period.

Fixed Income

Global bonds: US Treasuries closed marginally stronger overnight. Sentiment was supported, amongst others, by Japan leaving its policy rate unchanged at -0.10% and persistence of a negative interest rate policy. There was also safe-haven demand from Red Sea shipping disruptions. On the other hand, Fed-speak continued to be opposite from Powell’s seemingly dovish comments; Atlanta Fed President Bostic (2024 FOMC voter) said he does not see urgency to cut rates in the coming year. In data releases, total housing starts increased 14.8% m/m in November to a seasonally adjusted annual rate of 1.560 million units. In other bond markets, Germany’s government indicated plans to issue less debt in 2024 (target at EUR440 billion) versus 2023 (EUR500 billion). Bunds were also supported by Euro area inflation at its lowest since last November.

MYR Government Bonds: The ringgit sovereign bond market saw higher trading volume yesterday; totalling MYR1.8 billion or rising from MYR1.1 billion. However, papers were little changed, amid consolidation along the UST market the day before. The 10Y MGS was unchanged at 3.75%.

MYR Corporate Bonds: Traded volume in the PDS space was also heavier yesterday, but the market was supported in contrast to the muted MGS performance. Notable trades include downward yield realignment on AAA BPMB where 03/32 BPMB fell 22 bps to 4.00% and the 11/31 BPMB was dealt at 3.98%, or down 8 bps. Meanwhile, AA3 rated 12/27 Affin Islamic shed 16 bps to close at 4.09%.

Forex

United States: The dollar index fell to 102.2 and testing early-August lows whilst markets continued to bet that the Fed will cut interest rates next year. This was despite recent Fed-speak pulling back from the seemingly dovish Fed Chair Powell’s speech after the recent FOMC meeting. USD rose against the JPY arising from BoJ’s rate decision and lack of commitment to exit its negative rates policy.

Europe: The EUR gained over the weak USD despite mixed signals from ECB officials and drop in inflation data. ECB member Villeroy said the ECB could lower rates sometime in 2024 but another ECB member Simkus said the market's expectations for rate cuts are too optimistic. Expectations of Fed cuts next year buoyed the GBP as it rose by 0.7%.

Asia-Pacific: The yuan was pressured as concerns over China’s growth persisted. This was despite the People’s Bank of China (PBoC) continuing to set midpoint fixing for the yuan at a firmer level, at 7.0982 or 359 pips firmer than the day before. Aside, as the BoJ kept its ultra-low policy rate unchanged and did not offer a change to its current outlook, the yen fell by over 0.7%. Meanwhile, with the yen weakening, the Australian dollar slightly appreciated as it rose 0.8%% versus the US dollar. Reserve Bank of Australia (RBA) meeting minutes indicate policymakers were strong in their view to leave the cash rate target unchanged at the latest meeting.

Malaysia: The ringgit was supported by the broad US dollar weakness during the Asian session, even though the Malaysia’s latest trade data was weak, and that the weak yuan remains a negative factor for the ringgit. Yet, the MYR led most regional currencies yesterday. USD/MYR fell 0.3% and the MYR was overall stronger on the crosses as well.

Other Markets

Gold : Gold prices firmed on Tuesday as the USD and UST yields slipped. Gold was traded higher as its price rose 0.6% to USD2,040 per oz.

Crude oil: Crude oil rose further, up >1%, boosted by news that militants had stepped up attacks on ships on the Red Sea.

FBM KLCI: The FBM KLCI remained supported on Tuesday, despite worries over China’s growth.

US Equities: US equities continued to be boosted by Fed rate cut hopes.

Source: AmInvest Research - 20 Dec 2023