Snapshot Summary…

Global FX: The dollar rose amid firm US data while markets have largely adjusted to Fed rate cut expectations

Global Rates: US Treasuries were supported by weak inflation data in the UK and safe-haven demand

MYR Bonds: A tad more mixed trading in the govvies segment yesterday

USD/MYR: MYR strengthened along with regional currencies as they took more advantage of USD pressure

Macro News

United Kingdom: The UK's annual inflation rate decelerated to 3.9% in November, the lowest since September 2021, down from 4.6% in October. This decline was influenced by decreased prices in transport, recreation, culture, food, and nonalcoholic beverages, among other factors. Core inflation also decreased to 5.1%, reaching its lowest level since January 2022.

Euro Area: The Euro Area recorded a current account surplus of EUR 30.1 billion in October 2023, a significant improvement from the EUR 14.6 billion deficit in the same period the previous year. This positive shift was driven by surpluses in the goods and services accounts, with the goods account switching to a EUR 32.9 billion surplus and the services surplus increasing to EUR 12.1 billion. Additionally, the primary income deficit narrowed, while the secondary income deficit expanded.

China: The People's Bank of China (PBoC) has maintained lending rates at the December fixing, with the 1-year loan prime rate (LPR) held steady at a record low of 3.45% for the fourth consecutive month. The 5-year rate, a reference for mortgages, was also unchanged at 4.2% for the sixth straight month.

Fixed Income

Global bonds: US Treasuries were supported by weak data in the UK and safe-haven demand. These comprise UK inflation data for November and geopolitical risks related potential military reaction to Houthi rebels activity in the Red Sea. The market largely ignored stronger-than-expected US November existing home sales activity and consumer confidence for December, as well as weaker 20Y UST reopening auction. The USD13 billion 20Y UST auction garnered BTC of 2.55x vs. average 2.65x BTC in prior 12 auctions of the 20Y. Indirect bidders, which include foreign central banks, was 66.4% vs. 71.2% average past 12 auctions.

MYR Government Bonds: A tad more mixed trading in the govvies segment yesterday as trading seem to take a breather while global rates have adjusted downward. The 10Y MGS remains supported below 3.80%, dealt last at 3.74% (-1 bp).

MYR Corporate Bonds: Corporate bond yields mostly fell in keen trading interest yesterday. Gains on heavier flows were focused on higher grade infra and utilities names as yields realigned. These include 01/27 and 01/28 PLUS which closed at 3.84% and 3.89% respectively.

Forex

United States: The dollar index rose yesterday, as we think markets have largely adjusted to expectations that the Fed will embark on accelerated interest rate cuts in the coming year. However, we also think there was dollar demand ahead of Friday’s release of US PCE data. The dollar also benefitted from firm US data; the Conference Board's consumer confidence index surged from 101.0 to 110.7, which is the secondhighest since January 2022. Existing homes sales rebounded slightly. A weaker US equities market yesterday, rebounding lower after a week-long rally, amid profit warning from FedEx, prompted USD safe demand as well.

Europe: The EUR was capped below 1.100 as the US dollar firmed up. The common currency also remained pressured amid this week’s mixed European Central Bank officials’ comments. However, traders shrugged aside ECB policymaker Joachim Nagel who on Wednesday said Europe’s interest rates must remain high. Elsewhere, the GBP fell by 0.7% amid the release of the UK CPI, which fell to the lowest since September 2021 at 3.9% in November from 4.6% in October.

Asia-Pacific: CNY weakened yesterday amid weak sentiment in onshore markets, especially equities (Shanghai Composite fell 1% yesterday), due to sustained worries over the economy. Bloomberg reported offshore investors were net sellers of CNY1.5 billion Chinese equities yesterday. Meanwhile, the PBoC set the mid fixing rate for USD/CNY at 7.0966 which is stronger than anticipated as per Bloomberg, but did not deter CNY weakness. On Wednesday, the PBoC reported that the 1-year Loan Prime Rate was held steady at 3.45% and the 5-year at 4.20%, as expected. Meanwhile, the JPY was steadier at 143.43, as Japanese bonds and equities strengthened as markets reduced bets for a BoJ rate hike in coming months. Aside, the AUD edged higher in view of expectations the Fed will cut rates next year.

Malaysia: MYR strengthened along with regional currencies as they took more advantage of USD pressure from Fed rate cut expectations. USD/MYR was seen near 4.658 late yesterday, down from 4.678 the day previous. It was another day of divergence in MYR from CNY direction, presumably on concerns the risk aversion was mainly on China's growth issue, and that PBoC may be closer to rate cuts vis-a-vis regional central banks including BNM.

Other Markets

Gold: Gold underwent profit taking, after rising above USD2,030 per oz this week, as well as falling amid firmer USD and declines in UST yield levels.

Crude oil: Crude oil rose further, with Brent up 0.6% after rising >1% the day before, continued to be boosted by geopolitical risks arising from the Red Sea.

FBM KLCI: The FBM KLCI fell by 0.1% and ending a week-long rally.

US Equities: US equities fell with major indices down by >1%. Markets were rebounding lower after a week-long rally, amid profit warning from FedEx.

Source: AmInvest Research - 21 Dec 2023