Snapshot Summary

Global FX: Decline in US consumer confidence index pressured the dollar

Global Rates: Treasuries posted gains amid the weak data

MYR Bonds: There was some pressure on bonds yesterday, while KLIBOR rose a tad

USD/MYR: Amidst improvement in risk appetite, MYR gained further ground

Macro News

Australia: The Reserve Bank of Australia (RBA) decided to keep its cash rate steady at 4.35% during its September meeting, marking the seventh consecutive meeting without a change and aligning with market expectations. Although headline inflation is expected to decline further, it will not reach the 2 to 3% target by 2026. The RBA stated that the policy will remain sufficiently restrictive for the foreseeable future. The central bank anticipates that household consumption will recover in the second half of 2024 as challenges ease. Still, the rebound may be slower than expected, leading to continued modest output growth and a more pronounced deterioration in the labour market. Additionally, the committee decided to maintain the interest rate on Exchange Settlement balances at 4.25%.

US: The Conference Board Consumer Confidence Index fell to 98.7 readings for September, from 105.6 in August, the biggest decline in 3 years. although the August number was revised higher to 103.3. The Richmond Fed Manufacturing Index fell to -21 in September 2024, down from -19 in August and below the anticipated -17. This marks the steepest decline in factory activity since May 2020. Shipments declined, dropping to -18 from -15 the previous month, and employment also worsened, falling to -22 from -15. However, new orders slightly improved, rising to -23 from -26.

China: The PBoC announced pro-growth measures with an eye towards the official growth target of 5.0%. The central bank measures include trimming the reserve requirement ratio (RRR) by 50 bps, with another 25-50 bps cut later this year. The PBoC will also trim the 7D reverse repo rate to 1.50% from 1.70%, cut the medium-term lending facility rate by 30 bps and lower mortgage rates with an expected average drop of 50 bps.

Fixed Income

Global Bonds: US Treasuries strengthened overnight, with the 2Y down 5 bps to 3.54% and the 10Y down 2 bps to 3.73%. The release of the consumer confidence number down in September contributed to the UST gains and outweighed some caution amid the USD69 billion auction of the 2Y notes.

MYR Government Bonds: As the market found US yields rising yesterday during the Asian session due to profit-taking and players noted a rise in the 3M KLIBOR, there was a modest weakness in the MGS space, specifically on the front of the curve. These outweighed the support for bonds from the strength of the ringgit.

MYR Corporate Bonds: The market saw more activity yesterday, but yields remained mixed. There was realignment on some names while we noted the debut of AA1-rated Johor Plantation, where the 10Y 09/34 was seen at 4.04%. As for the GGs, Danainfra 02/51 was heard dealt at 4.19% (unch) and 08/52 at 4.23% (-1 bps).

Forex

US: As traders' focus has turned to data watching, the unexpected decline in consumer confidence pressured the dollar. Some risk-on mode in the market also sent the dollar lower, with some selling pressure against the yuan, as seen following easing measures announced by China.

Europe: As the dollar weakened, the euro and British pound increased by 0.6% and 0.8%, respectively. Some boost for the former came from a slightly hawkish speech by ECB official Madis Muller, who said it is still too early to make a rate cut decision in the October meeting as data is still insufficient.

Asia Pacific: The Japanese yen benefitted from the weaker dollar on Tuesday, but gains were limited after BoJ Governor Kazuo Ueda remarked that the central bank could take its time to monitor the economy as it dictates monetary policy, dashing the hope for further interest rate hike soon. In China, the market cheered after the PBoC announced easing measures to boost the economy, including cutting RRR by 50 bps, with another 25-50 bps cut later this year, and trimming the medium-term lending facility rate by 30 bps. On the day, the yuan went up by 0.3%. Meanwhile, the Aussie dollar increased after the RBA kept its cash rate at 4.35%. The central emphasised that policy must stay restrictive until inflation sustainably moves towards the targets. The AUD has now been trading near its highest level since July last year.

Malaysia: Amidst the improvement of risk appetite in global markets, the ringgit gained further ground to reach 4.15 per dollar yesterday, its strongest level in almost three years. Better sentiment in China also helped buoy the ringgit following the easing measures by the PBoC.

Other Markets

Gold: Gold was supported by the expectation of more rate cuts and for a safe haven amid the Middle East conflict. It rose 1.1% overnight, to USD2,657 per oz, or up USD28 per oz.

Oil: Oil prices rose, with Brent rallying by 1.7% to USD75.17 per barrel. Oil was buoyed by news of China's stimulus and amid the conflicts in the Middle East.

Source: AmInvest Research - 25 Sep 2024