Snapshot Summary

Global FX: The dollar pared an early drop after the US jobs data showed a gradual cooling

Global Rates: UST rallied on the back of the US jobs release

MYR Bonds: The MGS market was flat before the NPF last Friday

USD/MYR: Late USD support for the jobs data is likely to lead traders to watch the dollar as a guide to ringgit trading sentiment as we open this week

Macro News

United States: Non-farm payrolls data for August was lower than expected at +142k versus +165k market expectations, but higher than in July. Speaking of which, the July NFP number was revised to 89k from +114k in the previous estimate. However, the unemployment rate fell to 4.2% from 4.3%, which was expected. Average hourly earnings rose higher than expected at +0.4% m/m versus +0.2% the prior month and against a forecast of +0.3%.

Global: The FAO Food Price Index declined to 120.7 in August 2024, marking a three-month low, down from a revised 121 in July. Cereal prices fell by 0.5%, reaching their lowest point since September 2020, primarily due to decreased wheat export prices driven by weak international demand and intense competition among exporters, particularly from Black Sea sources. Additionally, higher-than-expected wheat production in Argentina and the US further eased prices. Sugar prices dropped 4.7%, hitting their lowest level since October 2022.

Fixed Income

Global Bonds: Treasuries rallied on the back of the jobs data. The 10Y UST fell 2 bps to close at 3.71%, but the 2Y UST was notably stronger as it fell 10 bps to close at 3.65%. Thus, the 10Y/2Y closed last week in positive spread territory. The market received the weaker-than-expected NFP. However, the decline in the US unemployment rate to 4.2% in August, as expected, from 4.3% in July, slightly reduced the futures trading pricing of >25 bps Fed rate cut this month; 39% probability of a 50 bps cut as we began this week versus 41% before the NFP and employment rate data last week. Also aiding UST was Fed Governor Waller, who said he was 'open minded' towards a larger than anticipated interest rate cut. Bunds and Gilts rallied on Friday, trending with the UST market and the ECB meeting in the coming week when markets expect a cut in the deposit rate by 25 bps to 3.50%.

MYR Government Bonds: Malaysia's government bonds closed slightly with cautious sentiment before the release of the NFP data after hours. We expect govvies trading onshore to see some support as we open this week, seeing the lower UST yields after the US jobs data. We also have the 20Y GII 08/43 auction to go through, but demand could be decent, with real money players likely to seek the paper.

MYR Corporate Bonds: Malaysia's corporate bond trading was also mixed last Friday. Net buying activity on higher-grade AAA papers was countered by realignment on select names, including banking and power sector names. Heavier flows include those on short-dated AAA-rated Putrajaya 04/25, which fell 3 bps to 3.52%, as well as AA1 Sabah Credit 04/25, which rose 2 bps to 3.67%.

Forex

United States: The dollar pared an early drop last Friday after the US labour market data showed a gradual cooling rather than a sharp one, which should support the case for a small rate cut by the US Fed. The dollar was also supported as stock markets and other risky assets fell.

Europe: The euro fell 0.2% on the day, alongside the 0.4% drop in the GBP. While the UK's data flow was more muted, data from the Eurozone was rather mixed. The region's 2Q2024 GDP third estimate was revised lower to 0.2% q/q from the second estimate of 0.3% q/q, which heightened the concerns for a further economic slowdown - coming ahead of the anticipated ECB rate cut.

Asia Pacific: The Japanese yen firmed up on persistent expectations of an imminent rate hike by the BoJ. But last Friday's household spending fell faster than market forecasts, placing doubts over those rate hike plans. In China, the yuan has strengthened to its firmest level since late last year, as the PBoC set the yuan reference rate at 7.0925 per dollar, the highest level in eight months. However, the gains were limited, as before Friday, a PBoC official said the central bank still has room to ease monetary policy by lowering banks' RRR.

Malaysia: Better reading for the ringgit last Friday before the US jobs release, alongside the weak trending dollar. However, late support for the USD after the jobs data is likely to lead traders to watch the dollar as a guide to ringgit trading sentiment.

Other Markets

Gold: Gold fell at a pace of -0.8% on Friday as the dollar steadied in late trading. Alongside the central banks' anticipated rate cuts this month, we do not discount more rallies in gold despite already hovering near all-time highs.

Crude oil: Oil prices fell, with Brent and WTI closing down by 2.2% and 2.1%, respectively. Oil prices were not encouraged by the NFP, which registered below consensus expectations. This was even amid OPEC+ saying it is delaying output cuts.

Source: AmInvest Research - 9 Sep 2024