Snapshot Summary…

Global FX:

The dollar was supported by safe-haven demand on increased geopolitical tensions

Global Rates:

US Treasuries gained at the beginning of the week with yields dropping 3 – 6 bps

MYR Bonds:

MGS/GII space started the week on a mixed note as the yield curve slightly flattened

USD/MYR:

Trading in the Malaysian ringgit was cautious resulting in USD/MYR remaining above 4.730

Macro News

Malaysia

: Malaysia's Department of Statistics Malaysia (DoSM) said Producer Price Index (PPI) recorded a decrease of 1.3% y/y in December 2023 as compared to a 1.5% contraction in November 2023. The decrease was attributed to the Mining sector, -3.4% (November 2023: -4.7%) due to Extraction of natural gas (-7.8%). The Manufacturing sector was -1.5% (November 2023: -1.4%) owing to the Manufacture of coke & refined petroleum products (-12.3%). The Electricity & gas supply sector also fell (-0.6%, or similar to the previous month).

Singapore:

The Monetary Authority of Singapore (MAS) kept its monetary policy settings unchanged, as expected, in its first review of the year whilst inflationary pressures continued to moderate, and growth prospects improved. Singapore's central bank said it will maintain the prevailing rate of appreciation of its exchange rate-based policy band known as the Nominal Effective Exchange Rate, or S$NEER. The width and the level at which the band is centred did not change. "Barring any further global shocks, the Singapore economy is expected to strengthen in 2024, with growth becoming more broad-based. MAS core inflation is likely to remain elevated in the earlier part of the year, but should decline gradually and step down by Q4, before falling further next year," MAS said.

Fixed Income

Global Bonds:

The UST market marked an early gain during the session, led by the gains in Bund curve as yields dropped by 4 – 7 bps, supported by dovish remarks over the weekend by ECB’s Francois Villeroy de Galhau saying the central bank could cut interest rate any time in 2024. UST papers later extended its gains after the US Department of Treasury reduced its estimate for federal borrowing during 1Q2024, an unexpected move, to USD760 billion in net borrowing, down from the previous estimate of USD816 billion in late October 2023. By the end of the day, the UST yields shifted lower by 3 – 6 bps across the curve.

MYR Government Bonds:

Malaysia sovereign bond space started the week on mixed note as yields across the curve were flattened slightly but buying interest emerged around the longer dated bonds. With FOMC meeting around the corner, the local bond market activities should remain light until more clarity is presented post the meeting. As of yesterday, WIRP is showing around 2% probability that Feds will cut rates in the upcoming meeting this Wednesday and 51% chance of rates cut in the March meeting.

MYR Corporate Bonds:

Trading volume in the PDS space was subdued at the start of the week but buying continue to overwhelm the market. Among notable trades were MYR40 million on 03/31 LPPSA (GG) done at 3.86%, MYR20 million on 11/32 Petroleum Sarawak (AAA) done at 4.02%, and MYR1 million on 09/19 Tropicana Corp.

Forex

United States:

The dollar was supported by safe-haven demand on increased tensions between the US and Iran after US servicemen were killed after a drone attack by Iranian-backed militants on a US base in Jordan. However, the dollar retreated when UST yields fell after the Treasury Department cut its borrowing estimates for 1Q2024.

Europe:

There was weakness in EUR/USD on the back of dovish ECB comments on Monday which saw the euro move down to a more than one month low against the dollar. ECB Vice President Guindos said inflation risks are declining while Governing Council member Centeno said the central bank should lower rates sooner rather than later.

Asia-Pacific:

Escalating geopolitical tensions in the Middle East kept a lid on risk sentiment in the Asia trading session yesterday. Meanwhile, news that a Hong Kong court has ordered the liquidation of property giant China Evergrande Group lent more pressure on CNY which weakened by a slight 0.04% yesterday with sentiment already cautious ahead of Chinese CPI, PPI and PMI releases this week. However, Bloomberg reported state banks ramped up USD sales yesterday which reversed early CNY losses. USD/CNY dipped below 7.180 late Monday versus 7.183 level earlier. The JPY weakened to begin this week, compared with support seen late last week, as it lost out against a steady USD ahead of FOMC and NFP release later this week.

Malaysia:

Trading in the Malaysian ringgit was cautious resulting in USD/MYR traded higher by 0.1% yesterday and hovering above 4.730 while the US dollar was supported ahead of this week's FOMC meeting. The ringgit also did not get support after Malaysia reported producer prices fell 1.3% in December.

Other Markets

Gold

: Prices were supported as its rose 0.7% overnight, aided by safe haven demand due to escalating geopolitical risks.

Crude Oil

: Prices fell overnight, despite escalating geopolitical risks, as China's demand risks worried traders. Also, Bloomberg reported that OPEC+ is currently slower-than-expected in its planned output cuts of 900k barrels per day this month.

Source: AmInvest Research - 30 Jan 2024