Snapshot Summary

Global FX: Dollar strengthened as Powell said rate cuts will occur 'over time'

Global Rates: Powell guided the markets and bond yields rose

MYR Bonds: Rates were mixed awaiting more guidance

USD/MYR: Ringgit pared gains but remain near 4.120

Macro News

China: The Caixin China General Manufacturing PMI declined to 49.3 in September, down from August's 50.4, falling short of expectations of 50.5 and reaching its lowest level since July 2023. The decline was driven by a renewed decrease in new orders, which hit a two-year low. Additionally, foreign sales experienced their largest drop in 13 months due to weak market conditions.

UK: GDP grew by 0.5% q/q in 2Q2024, slightly lower than the initial estimate of 0.6% and down from 0.7% in 1Q2024. Revisions indicated lower government spending and exports, while investment saw a greater increase. Government consumption rose by 1.1% q/q, less than the anticipated 1.4%, primarily due to public administration and defense, which offset declines in the health sector. Exports decreased by 0.3% q/q, contrary to the initial forecast of a 0.8% increase, largely due to a 2.8% drop in goods exports. Imports rose by 6.3% q/q, revised down from 7.7%.

US: The Dallas Fed Manufacturing index rose slightly to -9.0 in September, up from -9.7 the previous month, marking the least negative sentiment in the sector since January 2023. The modest improvement occurred despite declines in new orders (-5.2 compared to -4.2 in August) and production (-3.2 compared to 1.6), highlighting the continued sluggishness in US manufacturing.

Fixed Income

Global Bonds: The UST market saw another day of weakness after Fed Chair Jerome Powell delivered a speech at a conference stating there is no hurry to cut rates and will do so 'over time', leading traders to lower their expectations of a 50 bps rate cut at the Fed's next meeting. According to the CME Group FedWatch Tool, the probability of a 50-bps cut in November has dropped to 35%, from about 53% Friday. Meanwhile, at end September, 2Y yields fell >20 bps m/m as the Fed began its easing cycle, with the potential for further inflation easing and concerns over a weak labour market.

MYR Government Bonds: Sentiment was guarded in the Malaysian government bond space yesterday, awaiting more guidance, especially ahead of US jobs data this week. This allowed for some profit taking to occur, suspected mainly from offshore investors. IRS rates were mixed as well.

MYR Corporate Bonds: Mixed performance continued in the corporate bond market yesterday, coming alongside the sluggish govvies trading awaiting fresh guidance. Volume traded was relatively light whilst we noted more realignment on select issuers. Select trades involved AA-flat OSK IMTN 04/28 at 3.85% which rose 2 bps and long dated GG Prasarana Sukuk 07/45 at 4.10% which fell 2 bps.

Forex

US: The dollar strengthened on Monday following Federal Reserve Chair Jerome Powell's comments on the rate outlook. The rise was also in line with the higher move in UST yields.

Europe: The euro declined, and the British pound trimmed its earlier gains as both currencies faced pressure from the dollar rebound. The euro experienced additional pressure after data revealed that German inflation had dropped to its lowest point since February 2021. Meanwhile, the UK's final GDP number was revised lower but the GBP's reaction to it seemed muted.

Asia Pacific: The yen weakened Monday. We noted mixed data on Japan's industrial production (-3.3% y/y vs. cons. -0.9% y/y) and retail sales (2.8% y/y vs. cons. 2.3% y/y). In the meantime, the CNY weakened slightly and possibly entering a new consolidation range as markets await for more clues for an either bullish or bearish yuan after easing policies announced last week.

Malaysia: The ringgit pared its early gains and ended Monday at around the 4.12-level, in tandem with gains among Asian currencies, propped up by the recent stimulus announced in China.

Other Markets

Gold: The precious metal fell almost 0.9% overnight as Powell signalled there's no hurry to cut rates but 'over time'.

Oil: Oil prices were slightly lower. Brent fell 0.3% while WTI was relatively flatter. Fears over the Middle East continued to stoke oil appreciation, but overnight sentiment was tied by expectations that supply from Libya would return to the market. Libya was reported mulling output hikes after two rival governments in the country apparently reached a deal to allow production to resume after disruptions since August.

Source: AmInvest Research - 1 Oct 2024