Snapshot Summary…

Global FX: Dixie further declines in a muted trading day

Global Rates: US Treasuries closed weaker but within a tight range

MYR Bonds: MGS market closed with modest gains amid a lack of fresh market drivers

USD/MYR: Ringgit firmed by a slight 0.1%

Macro News

Malaysia: Malaysia’s industrial production (IP) eased 0.1% in December 2023, compared to 0.6% y/y growth in the prior month and 0.7% market forecast. The slight decline can be attributed to the contractions in the Manufacturing sector at 1.4%. But the loss was partly offset by Mining and Electricity, with growth of 3.6% y/y and 4.6% y/y respectively. The decline in Manufacturing was led by Electrical & Electronics subsector (-6.7%) and Petroleum, Chemical, Rubber & Plastic Products (-2.7%).

United Kingdom: The Halifax House Price Index grew 2.5% y/y during January 2024, its highest level since January 2023, and by 1.3% m/m (consensus: 0.8% m/m). This is amidst the reduction of mortgage rates by the lenders, easing cost pressures and a healthy labour market. Aside from that, the interest rate in the UK remained elevated compared to the previous historical low.

Germany: Germany reported that industrial production fell further to its seventh consecutive month. Production fell 1.6% m/m in December, or a larger dip than earlier expectation of -0.5%. The risk of Germany falling into recession is higher after GDP shrank by 0.3% in 4Q2023.

Fixed Income

Global bonds: Amid a lack of drivers to the market, US Treasuries closed weaker but within a tight range. After the previous week's rate decisions and rush of economic data, traders await to be guided by incoming Fed officials' speeches this week and the next. Aside from that, the Treasury Department sold a record amount of USD42 billion in 10Y notes. The auction garnered firm demand with a high yield at 4.093% versus WI of 4.105%, while BTC was 2.56x versus the 2.49x average of the past 12 auctions of the 10Y. In secondary trading, the 10Y UST rose 2 bps to close at 4.12%. ECB policymaker Schnabel warned that lowering interest rates could risk lifting inflation but said policymakers must exercise caution before embarking on their first rate cut. 10Y Bunds rose 2 bps to close at 2.32%.

MYR Government Bonds: The MGS market closed with modest gains yesterday amid a lack of fresh market drivers, except for the prior day’s slip in global bond yields. Meanwhile, after last night’s mixed UST movement and ahead of the long weekend, we anticipate the MGS to see more modest support today. Yesterday, the 10Y MGS fell 0.5 bps to close at 3.80%.

MYR Corporate Bonds: The ringgit corporate bond market was mainly mixed yesterday, but we noted some interest in AA papers, possibly due to investors looking for yield pickup. 10/28 Eco World (AA-) fell 4 bps to 4.05%, while 11/28 MMC Corp fell 15 bps to 4.11%.

Forex

United States: The Dixie further consolidates on a muted trading day as the major bourses rallied, with the S&P500 hitting a new fresh high on the overall robustness in US earnings and alleviating concerns for regional bank issues. Investors also shrugged off the chorus of US Fed officials reiterating cautious notes in executing rate cuts.

Europe: Amidst muted dollar movement, the EUR and GBP benefitted and gained 0.2% each. However, the gains on the euro may have been capped as concerns about the Eurozone’s economic prospects continued following data showing Germany’s industrial production contracted at a larger pace of 1.6% m/m in December 2023, compared to the market forecast of 0.4% m/m. In the UK, the GBP reached as high as 1.264 after it was reported that housing prices in the UK grew at their fastest pace since January 2023.

Asia-Pacific: Major currency JPY weakened to close at 148.18 on Wednesday. Traders now wait for a speech by BoJ Deputy Governor Shinichi Uchida later today to get a clearer picture of when the central bank will exit its negative rate monetary policy. Meanwhile, the yuan remained on the downside, declining closer to the 7.20 level. However, the currency’s volatility falls ahead of the Lunar New Year, with onshore trading expected to be suspended for ten days starting tomorrow. Data due today is inflation reading, which the market anticipates prices remained tepid.

Malaysia: The ringgit retraced some of its recent losses and firmed slightly to finish the day at 4.761 after trading within the range of 4.757 – 4.770. Gains on the ringgit were subdued after Malaysia's industrial production unexpectedly shrank 0.1% y/y in December 2023, after a 0.6% y/y growth in the prior month and a market forecast of 0.7% y/y.

Other Markets

Gold: Gold could not take advantage of the higher dollar and lower UST yields as traders were slightly optimistic about the US economy and recovered some risk appetite, prompting rallies in Wall Street stock indices. Its prices were closed at USD2,035/oz.

Crude oil: Crude oil prices rallied for the third day this week, driven by a larger fall in US fuel stocks and rising tension in the Middle East. Both Brent and WTI climbed 0.8%.

Source: AmInvest Research - 8 Feb 2024