Snapshot Summary...

Global FX: The dollar rose as US data exceed expectations

Global Rates: Treasuries weakened upon release of the latest US data ahead of FOMC

MYR Bonds: Malaysia's government bonds continue to rally, this time was suspected on the back of the ringgit rally

USD/MYR: The ringgit strengthened further to reach around 4.25 level

Macro News

Germany: The ZEW Indicator of Economic Sentiment for Germany plummeted to 3.6 in September, which is the lowest level since October last year. This is a drop from 19.2 in August and is below the expected 17 reading. The latest number marks the third consecutive month of declining economic sentiment, dissipating optimism that has been present since November 2023.

United States: US retail sales rose by 0.1% m/m in August, following a revised increase of 1.1% in July, and surpassing expectations of a 0.2% decline.

IPI rose by 0.8% m/m in August, the largest gain in six months and above expectations of a +0.2%. Manufacturing, which accounts for 78% of total production, rose by 0.9% m/m, outpacing 0.3% forecast increase.

Fixed Income

Global Bonds: Treasuries partly reversed past week's gains with the 2Y UST up 5 bps and the 10Y up by 3 bps to 3.60% and 3.65% respectively, upon US retail sales data pointing to a stable US economy. CME FedWatch now is pointing to 63% probability of a 50 bps Fed cut, compared to 34% last week. Treasuries remained firmer compared with a week ago, when the 10Y UST was found above 3.75%, as traders were wary that the Fed may cut by a larger than expected 50 bps at this week's FOMC.

MYR Government Bonds: Malaysia's government bonds continue to rally yesterday, and this time was suspected on the back of the ringgit rally which sustained below the 4.300 level. The market awaits details for reopening of the 7Y MGS 04/31, which we foresee at issuance size of MYR4.5 billion.

MYR Corporate Bonds: Very small trading was recorded in the corporate bond space yesterday as most of the market were away due to the replacement holiday. Amongst the traded, anyway, included MYR40 million flows on AA1 rated YTL Power 03/37 at 4.13% (unch), and just MYR20 million done on AAA PLUS 01/38 at 4.06% (+3 bps).

Forex

US: The dollar index bounced off from recent lows and erased early session losses after headline retail sales data unexpectedly rose in August 2024 and industrial and manufacturing production grew faster than market consensus, suggesting the US economy is still healthy. In tandem with the rebound dollar, the UST yields also rose on the day. However, the index remained near the bottom part of the past weeks range, which could be broken once the Fed presented its decision tomorrow night.

Europe: Both the EUR and the GBP pulled back from recent three weeks high as the dollar went up on Tuesday. While there was no data flow came out from the UK, what probably pressured the EUR as well was the downside surprise on ZEW Economic Sentiment Index for both Germany and the Eurozone.

Asia Pacific: The Chinese yuan was relatively stable amidst Mid-Autumn Festival holiday. But sentiments on the yuan remained amidst weak economic fundamentals still. In Japan, the yen broke the five straight days of bull run after US data came in better than expected.

Malaysia: The ringgit strengthened further to reach around 4.25 level post-holiday. But there is a possibility that the ringgit could retrace some of the gains today as a reaction towards the better US data overnight.

Other Markets

Gold: Non-interest yielding gold strengthened by a firm 2% rise overnight ahead of continued speculation the Fed may cut by 50 bps.

Oil: Oil was supported amid continued Middle East tensions, ahead of anticipated Fed rate cutting cycle.

Source: AmInvest Research - 18 Sep 2024