Snapshot Summary...

Global FX: Bets for the Fed to execute a 50 bps rate cut this week pressured the dollar lower

Global Rates: UST rallied as markets remained wary over a large Fed cut

MYR Bonds: Malaysian govvies posted gains while ringgit IRS rates fell last Friday alongside lower global rates

USD/MYR: The USDMYR found its way to a 20-month low as its broke the 4.300 level

Macro News

China: China reported industrial production grew by less than expected in August, at pace of +4.5% y/y versus +4.7% consensus expectation, and also particularly lower than the +5.1% y/y rate recorded the month before. Industrial production is at a five- month low primarily due to disruptions from extreme weather during the summer. The offshore yuan was pressured amid the public holiday on Monday but traders await for Friday when PBoC will decide on its loan prime rate.

China also reported that retail sales in August rose by less than expected, at 2.1% y/y versus consensus of +2.5% and the previous month's rate of 2.7%.

US: Data for the US on Monday as we head towards FOMC this week was the Empire Manufacturing index surging to 11.5 reading for the month of September vs -4.0 consensus expectation and -4.7 reading the in August. The September figure was the first rise in nearly a year.

US export prices decreased by 0.7% m/m in August 2024, surpassing expectations of a 0.1% decline and following a downward adjusted 0.5% rise in July. Agricultural export prices fell by 2.0% m/m, primarily due to a substantial 9.8% fall in soybean prices, along with declines in corn, wheat, and fruit prices. Import prices declined by 0.3% m/m, following a 0.1% increase in the prior month and exceeding market expectations of a 0.2% decrease.

Fixed Income

Global Bonds: Treasuries rallied and yields went down to their lowest in the past two years amid boost to expectations the Fed may cut by 50 bps at the meeting this week. Signs of weak economic growth are there but may not necessarily warrant a large cut. Heading into the midweek FOMC, the last pertinent data to digest would be the August retail sales due on Tuesday.

MYR Government Bonds: Malaysian govvies posted gains while ringgit IRS rates fell last Friday alongside lower global rates during the Asian session, which in turn came from sentiment improving as the US PPI came in line in the latest August figures but was revised downward for the prior month. Malaysia's bonds also benefitted from the MYR rally.

MYR Corporate Bonds: Ringgit corporate bonds closed mixed where we noted volume traded was led by two-way flows on some power sector names. Of these, AAA rated Tenaga 11/36 at 4.00% (-3 bps), 06/37 at 4.02% (-1 bps), 08/38 at 4.04% (unch), and Tenaga 08/40 at 4.34% +28 bps. Meanwhile, AA3 rated Edra Energy 01/33 closed at 4.03%, down 10 bps, whereas Edra Energy 07/35 closed unchanged at 4.12%.

Forex

United States: The dollar index resumed its broad slide on Monday and testing the lower bound consolidation zone as bets for the Fed to execute a 50 bps rate cut at this week's meeting has grown noisier, with as much as 59% probability according to swaps/futures pricing, compared with 50% last Friday. Despite latest CPI inflation last week showing a gradual slowing and Friday's consumer sentiment index showed improvements, markets seemed to have ignored those signs.

Europe: Dollar weaknesses benefitted both the EUR and the GBP. Following the ECB's policy meeting last week, market players remained unclear on what would the decisions be when it comes to outlook. Policymakers like ECB Vice President Luis de Guindos are open to an October rate cut but another member Peter Kazimir argued that quick cuts are risky and need more data to allow for that.

Asia Pacific: The Japanese yen marked its fifth straight session of a bullish streak, reaching its strongest level since July last year amidst expectations that the BoJ would raise interest rates further whilst the Fed will cut rates. Meanwhile, the yuan held steady on Monday and could not benefit from the dollar slide as data released over the weekend surprised to the downside and suggest weaknesses in the economy continue to persist.

Malaysia: The ringgit steadied on Monday amid the holiday after it sharply firmed on Friday amidst risk on appetite in the global market. The USDMYR found its way to a 20-month low as its broke the 4.300 level, and seemed to be breaking its consolidation range.

Other Markets

Gold: Gold continued to rally as it touched USD2,582/oz as the dollar fell amidst bet of an outsized Fed rate cut.

Oil: Oil prices rose with Brent climbing 1.6% and WTI 2.1% amidst tight supply concerns; disruptions to Libya's oil exports and Gulf of Mexico production still recovering from last week's Hurricane Francine.

Source: AmInvest Research - 17 Sep 2024