Snapshot Summary

Global FX: The dollar fell 0.2% after US ADP employment data

Global Rates: UST yields extended its decline ahead of NFP release

MYR Bonds: Local govvies pared their gains on the back of profit-taking pressure

USD/MYR: The Ringgit trimmed its losses after the BNM monetary policy meeting

Macro News

Malaysia: Malaysia's central bank kept its key interest rate steady at 3.00% in September 2024 for the eighth consecutive meeting, aligning with market expectations. This decision comes amid growing optimism regarding the country's growth, inflation, and currency outlook. Policymakers emphasised that the current monetary policy supports the economy and aligns with their inflation and growth prospects assessments. However, the inflation outlook remains contingent on the rollout of domestic policy measures, particularly as the government plans to implement reforms after removing certain diesel subsidies.

United States: Private businesses in the U.S. increased their payrolls by 99k in August 2024, marking the lowest addition since January 2021. This figure follows a downward revised increase of 111k in July and falls short of the expected 145k. The data indicates that the labor market has been cooling for the fifth consecutive month, while wage growth has remained steady. Additionally, the number of individuals filing for unemployment benefits decreased by 5k to 227k for the week ending 31 August, falling below market expectations of 230k and reaching a new seven-week low.

The ISM Services index rose slightly to 51.5, up from 51.4 in the previous month. This increase exceeded market expectations, which had anticipated a decline to 51.1, indicating continued positive momentum in activity for U.S. service providers.

Fixed Income

Global Bonds: The UST closed with the 10Y/2Y spread near to positive territory. Yields continued to fall as we head towards today's NFP release, after the ADP report showed the private sector payrolls rose by less than expected in August. The CME Group's FedWatch show pricing of 41% probability of a 50 bps Fed cut at this month's FOMC and 59% probability of a 25 bps cut.

MYR Government Bonds: Onshore government bonds posted gains, to follow overnight UST strength which came on the back of lower-than-expected JOLTS jobs data. However, the local bonds pared gains due to profit taking pressure after bond yield went 1-2 bps lower. Meanwhile, the 20Y GIl 08/43 auction was announced, at MYR3 billion public tender and MYR2 billion private placement. WI was quoted at 4.095%/4.065%. Bonds reacted little to the MPC holding the OPR unchanged, which was expected by the market.

MYR Corporate Bonds: Malaysian corporate bonds saw a slant towards net buying activity yesterday. Gains were biased towards higher-grade AAA names, whereas TNB Power Gen tranches were especially notable. Also seen with gains were power sector names Edra Energy (AA3) and Renikola (AA2) with 15Y maturity and longer.

Forex

United States: The dollar fell 0.2% during Thursday's session after ADP employment change, which fell to the lowest level since January 2021, at 99k new workers. It buoyed the sentiment that the Fed will do its first rate cut in September for this cycle. Note that the DXY index is still within a consolidation trend (resistance of 101.97 and support of 100.51). The tepid reading for NFP and higher unemployment prints later tonight could send the dollar leg lower and perhaps past those support levels. Nonetheless, losses for the dollar were narrowed by lower-than-expected initial jobless claims and healthier reading on Services PMI.

Europe: In the Eurozone, data came out rather mixed, underpinning the region's economic growth struggles. However, the dollar's weakness pushed the euro higher by the end of the day. The GBP also benefitted from the lower dollar demand.

Asia Pacific: Most Asian currencies were on firmer ground as the expected policy easing by the Fed spurred buying for emerging market currencies. The Japanese yen firmed after data showed real wage growth in Japan grew again for the second straight month, building up the case for a BoJ rate hike. BoJ Board Member Hajime Takata said the central bank will hike more if data justify the move. In China, the yuan strengthened near its 16-month high amidst weaknesses on the dollar while the sentiment surrounding the Chinese economy remains sour. Meanwhile, the AUD was on the upside as well as RBA Governor Michele Bullock said that the central will struggle later on to maintain low unemployment if prices stay above its target level "indefinitely".

Malaysia: The USD/MYR started Thursday lower as it opened at 4.3512 and continues to fall, running up to the BNM monetary policy meeting. Post-meeting saw the pair retraced some of those losses but still posted a daily fall as it closed at 4.338. In our note yesterday, we posit that the OPR will stay at 3.00% in 2H2024, and possibly longer, considering Malaysia's subdued inflation and a flattish unemployment rate.

Other Markets

Gold: The precious metal gained 0.8% to close at USD2,517/oz as market players cheered for the lower ADP employment change print.

Crude oil: Oil prices were flat near their lowest price since June last year as traders were cautious ahead of key labour market data tonight.

Source: AmInvest Research - 6 Sep 2024