Snapshot Summary

Global FX: The DXY index was mixed as it ranged between 101.26 to 101.82

Global Rates: UST yield rose after US CPI release

MYR Bonds: Local govvies yields fell in tandem with ringgit IRS rate

USD/MYR: Ringgit remained within the consolidation range as it firmed at 0.3%

Macro News

United States: The US annual inflation rate decreased for the fifth month in a row, reaching 2.5% in August 2024, the lowest level since February 2021 and a substantial decrease from 2.9% in July. However, core inflation remained steady at a three-year low of 3.2% y/y, while the monthly core inflation rate ticked up to 0.3% from 0.2%, surpassing predictions of 0.2%. The CPI rose by 0.2% m/m, consistent with July's rate and in line with expectations. This, we believe, is a good prelude for a 25bps cut next week, which is at 85% according to CME FedWatch at the time of writing.

United Kingdom: The UK's GDP did not grow nor contract in July 2024, mirroring the 0% flat performance of June and falling short of expectations for a 0.2% increase. Services output saw a slight rise of 0.1% m/m, following a 0.1% decline in June. This growth was driven by sectors such as computer programming, consultancy, and related activities (1.6%), information services (4.2%), wholesale and retail trade and repair of motor vehicles (0.5%).

Fixed Income

Global Bonds: Yields in the UST market rose overnight as the market reacted to the US CPI release. In particular, the bond market focused on the core CPI at +0.3% m/m in August vs +0.2% in July. The government sold USD39 billion worth of the 10Y paper but received firm demand for BTC 2.64x vs. last month's 2.32x. The high yield was 3.648%, down from 3.960% at last month's 10Y auction.

MYR Government Bonds: Malaysia's government bond yields, as well as ringgit IRS rates, fell modestly across the tenors yesterday, aided by firm showing in global bonds during the Asian session. This came ahead of the awaited US CPI after hours. However, we expect a nervier MGS showing today after the higher US core CPI monthly reading last night and ensuing pressure on US yields.

MYR Corporate Bonds: Malaysia's corporate bonds saw mixed momentum yesterday, with net selling pressure on select AAA and AA names. Looking at particular names, we noted mixed movement in power bonds on both AAA and AA curves, suggesting some realignment in the sector papers. Of these, AAA rated Tenaga 08/33 was unchanged at 3.93%, Tenaga 08/37 fell 4 bps to close at 4.02%, Sarawak Energy (AAA) fell 1 bps to close at 3.53%, and AA3 Edra 07/37 at 4.19% (unch).

Forex

United States: The DXY index was mixed on Wednesday as it swung heavily within the 101.26 to 101.82 range after inflation data points towards smaller rate cuts by the US Fed during the upcoming September meeting. The unexpected rebound in core inflation meant the probability of a 50 bps rate cut has lessened to only 15.0% from 34.0% pre-data release, according to the CME FedWatch. Earlier, the dollar was pressured by the further rebound of the Japanese yen and higher opinion for Kamala Harris following the presidential debate also weighed on the dollar.

Europe: The pound eased 0.3% after UK monthly GDP growth showed no growth for the second month in July, while the market expected a slight 0.2% m/m growth. This could pressure the BoE to make further cuts to promote growth. The euro, meanwhile, was down 0.1% on the day.

Asia Pacific: Earlier during the session, the JPY had some lifts after BoJ board member Junko Nakagawa said the central bank would raise interest rates if the inflation and economy evolve the way it expects. In the meantime, the poll boosts for Kamala Harris translated into some positive sentiment for the yuan. In Australia, the RBA's Chief Economist Sarah Hunter reiterated the hawkish stance, saying Australia's job market is still strong and is fuelling inflation.

Malaysia: Ringgit firmed 0.3% on the day and remained within the consolidation range. Support for the ringgit remains following mixed US CPI data last night, and tepid labour market data last week suggests the US economy is only slowing and not dipping into recession.

Other Markets

Gold: The price fell to close at USD 2,512 per oz and backed down further from a peak of USD 2,531.75 per oz, as recorded in August, as the CPI data reduced the expectation of a large rate cut by the Fed this month.

Oil: Oil posted a rise, with Brent and the WTI rallying by over 2% amid immediate supply worries due to Hurricane Francine affecting the Gulf of Mexico. Markets now look to today's scheduled release of monthly supply data from the IEA. There is some caution after the IEA last month said supply may build up next year, regardless if OPEC+ cancels output hikes. We expect some short-term caution to emerge after Brent Bloomberg's implied volatility of Brent has again risen to above readings of 30 this month.

Source: AmInvest Research - 12 Sep 2024