Macro News

Malaysia : As widely expected, Bank Negara Malaysia’s (BNM) first Monetary Policy Committee (MPC) meeting for 2024 kept the benchmark OPR unchanged at 3.00%. This is the fourth straight MPC meeting in which BNM held the OPR level after hiking a cumulative 125bps in 2022-2023. The current interest rate level is on par with the pre-pandemic level. The MPC sees the current OPR level and monetary policy stance as remaining ‘supportive’ of the economy and is consistent with the current assessment of inflation and growth prospects.

Eurozone: The European Central Bank (ECB) held its interest rates at a record high though keeping open the door to rate cuts by the spring, sending the euro lower and share prices higher across the Eurozone. ECB President Christine Lagarde did not push back strongly against expectations of rate cuts starting in April. Lagarde said the ECB decided that it was premature to discuss cuts this week. She also pointed to indications of a slowdown in wage growth and suggested progress in the fight against high inflation. The ECB Main Refinancing Rate remained at 4.50%.

US : US Real GDP grew at an annual rate of 3.3% in 4Q2023 (consensus 2.0%), aided by a 2.8% increase in personal consumption expenditures. The GDP Price Deflator was up just 1.5% following a 3.3% increase in 3Q2023. The PCE Price Index decelerated to 1.7% from 2.6% in 3Q2023.

Fixed Income

Global bonds: US Treasuries posted firm gains with the 2Y down 6 bps to 4.12% and the 10Y falling a larger 9 bps to 4.29% which reduced the 10Y-2Y spread by 3 bps to 17 bps. Despite real GDP growing a steady 3.3% in 4Q2023, bonds were focused instead on the PCE Price Index decelerating to 1.7% from 2.6% in 3Q2023 while the GDP Price Deflator slowed to 1.5% from 3.3%. The implied likelihood of a rate cut at the March FOMC meeting rose to 50.4% from 39.7% at the start of this week. Meanwhile, Bund yields fell as the ECB maintained the door open for rate cuts by the spring.

MYR Government Bonds: Trading was muted in the Malaysian government bond market on Wednesday ahead of the midweek holiday. BNM holding the policy rate as expected and providing little signal of a shift in policy in the immediate term horizon as well as players awaiting US macro data releases contributed to the lack of large moves in the onshore bond market.

MYR Corporate Bonds:Trading in ringgit corporate bonds was relatively light again. This was alongside the muted interest seen in the government segment. Investors focused on higher grade papers. Flows were led by 08/35 YTL Power (AA1) which was unchanged at 4.15% and 12/27 Public Islamic (AAA) which shed 3 bps to close at 3,77%. In the quasi-government space, 07/38 LPPSA fell 9 bps to 4.06%.

Forex

United States:The dollar saw broad strength following the upbeat US GDP reading. However, dollar gains were capped by higher-than-expected initial jobless claims at 214K. The DXY index rose 0.3% to remain above 103.50.

Europe:The EUR fell 0.4% to settle the day at 1.085 after the ECB kept interest rates unchanged and its President Christine Lagarde said it was “premature to discuss rate cuts”. However, she noted that risks on economic growth are “tilted towards the downside”. The GBP fell 0.1% to 1.271. UK’s retail sales balance by the Confederation of British Industry dropped to -50 in January 2024, down from -32 in the prior month. This is the lowest level since January 2021 when Britain was in a Covid-19 lockdown.

Asia-Pacific:The JPY weakened 0.1% on Thursday against a stronger dollar and ahead of the Tokyo CPI data release. The median estimate by the Bloomberg survey is looking for Tokyo CPI to ease 1.9% y/y in January 2024 from 2.1% in the prior month. Any inflation and wage growth indicators are even more important currently amidst the expectations for a rate hike by the BoJ. In China, the CNY fell for the first time in five days, chalking in 0.2% d/d lower to finish the day at 7.174. Stock markets in China staged a rally after the PBoC said it would cut banks’ reserve requirement ratio (RRR) to shoring up weak economic recovery and boost investors’ sentiment. The AUD, however, rose 0.1%. On Wednesday, better reading on Judo Bank Composite PMI bodes well for the currency suggesting resiliency in the economy amidst an elevated level of interest rate.

Malaysia:The ringgit was unchanged as the market went on the Thaipusam holiday but weakened by a slight 0.08% on Wednesday following BNM MPC's decision to keep OPR unchanged at 3.00%. It was the fourth straight meetings in which the OPR was held steady as the current level is deemed as “supportive”, according to the MPC statement. In our report released on Wednesday, we argued that the OPR level remains appropriate as 1) domestic inflation levels do not indicate the need for a rate hike, 2) domestic demand needs to be sustained to ensure the GDP growth target remains intact, and 3) monetary policy is about growth-inflation balance rather than catching up on interest rate differentials.

Other Markets

Gold: Gold price rose 0.3% to USD2,021 as the UST yields fell.

Crude oil: Oil prices surged as the US GDP data showed faster growth than expected while prices were also lifted amidst the ongoing Middle-East tensions. Brent soared 3.0% while WTI surged 2.9%.

Source: AmInvest Research - 26 Jan 2024