Snapshot Summary...

Global FX: The dollar pared early losses as investors digested FOMC decision

Global Rates: Treasuries ended with a slightly weaker bias after the FOMC slashed by an outsized half a percentage point

MYR Bonds: Malaysia's government bonds were boosted by news Bank Indonesia opted to cut rates in a surprise move

USD/MYR: The ringgit strengthened past the 4.250-level even before the Fed cut

Macro News

US: The Federal Reserve delivered the outsized 50 bps FFR cut overnight, placing the lower and upper bounds at 4.75% and 5.00% respectively. According to Fed chairman Jerome Powell, the large cut done while the US economy is still performing well should help limit chances of an economic downturn. However, further rate decisions will still be dependent on incoming data. Fed Governor Michelle Bowman cast a dissenting vote, preferring a smaller 25 cut. This was the first dissent by a Fed governor since 2005. The Fed's latest dot plots suggest the FFR to be a level down to 4.375% by end 2024, or another 50 bps easing this year. The year-end forecast for 2025 indicated cuts of another 100 bps, and 50 bps in 2026 to at 2.75%-3.00% range.

UK: As of August 2024, the UK's Consumer Prices Index (CPI) inflation rate is 2.2% y/y, slightly above the Bank of England's target of 2%. This rate has remained steady from July 2024 and shows a slight increase from 2.0% in June 2024. Key factors influencing this rate include a significant rise in air fares and a decrease in motor fuel prices, along with a decline in prices for restaurants and hotels. Core inflation, which excludes volatile items, has also seen an increase at 3.6% y/y, slightly higher than 3.3% y/y in the prior reading.

Fixed Income

Global Bonds: Treasuries ended with a slightly weaker bias after the FOMC slashed the interest rate by an outsized half a percentage point. Markets were cognisant that the Fed may already was considering the large cut, thereby the lack of yield movement overnight. The 10Y/2Y spread remained within touch of +10 bps while the Fed latest dot plots suggest another 50 bps cut before the end year.

MYR Government Bonds: Malaysia's government bonds were mainly traded weaker in early session yesterday amid the cautious sentiment before FOMC but net buying interest was ignited in the afternoon session when Bank Indonesia was heard cutting interest rates. As we head towards the 7Y MGS reopening this week, WI was deemed to have tightened to 3.68/3.65% level.

MYR Corporate Bonds: Corporate bond trading was weaker yesterday amid a cautious market before FOMC. There was a lack of higher grade AAA flows, reflecting the generally sluggish interest. However, among the more notable trades yesterday included AAA PLUS 01/34 which weakened to 3.96%, up 2 bps, and AAA PASB 04/28 which weakened to 3.79%, up 2 bps.

Forex

US: Following the Fed FOMC's decision to start its cutting cycle with a bumper 50 bps cut, the dollar index initially fell but later gained ground to finish the day around 100.6, compared intraday low near 100.2. Policymakers now seem wary over labour market weakness and officials indicated "greater confidence" that inflation is sustaining towards target. We also noted the revised projections where officials see two more 25 bps cut this year compared to only one 25 bps cut in June projections; thus, the FOMC is committed to boost employment in the economy.

Europe: The EUR swung higher during early session but later fell to close at 1.112 when the dollar strength came in. The GBP firmed to 1.321 after the UK core inflation rate on annual basis ticked slightly higher than what market was expecting.

Asia Pacific: USD/JPY fell 0.1% to finish Wednesday at 142.29 post the 50 bps cut in the FFR. In China, the yuan firmed and reached its strongest level in 14 months, following Fed's decision. Domestically, attention is also turning to the PBoC's upcoming decisions on key lending rates, which are the 1Y loan prime rate and the 5Y rate, set to be announced on Friday.

Malaysia: The ringgit strengthened past the 4.250-level even before Fed decision though markets were increasingly pricing a 50 bps cut. Now that the Fed has delivered, the ringgit may gain further today, but dollar's mixed reactions last night could also mean traders are still digesting the Fed statement, whether another large cut may be forthcoming. On net basis, the ringgit may see volatile session today.

Other Markets

Gold: Gold dipped slightly, after already reaching another record level this week. After the 50 bps cut by the Fed, and another large cut already mulled by the markets, we think impetus for gold strength may continue in the short term period.

Oil: Oil fell on demand worries despite the sustained dovish Fed trajectory. Risks is still led by worries over China's economic growth. Meanwhile, EIA stated weekly US gasoline demand fell below 9 million bpd, while demand for jet fuel also fell.

Source: AmInvest Research - 19 Sep 2024