Snapshot Summary

Global FX: Dollar snapped its 12 day rally on improving global risk appetite

Global Rates: UST yields fell slightly lower but maintained near recent highs

MYR Bonds: Local govvies closed mixed despite weak UST

USD/MYR: The USD/MYR pair fell slightly and was within consolidation range

Macro News

Malaysia: Malaysia's government unveiled a historic budget of MYR421 billion during its Budget 2025 tabling on Friday, focusing on reducing the fiscal deficit, cutting subsidies, and enhancing the economy's competitiveness. Additionally, the government plans to increase revenue by reviewing the sales and service tax, which is scheduled to gradually expand starting in May 2025. As mentioned in our report "Budget 2025: Fiscal consolidation without straining short-term growth", we believe that Budget 2025 reflects the government's attempt to navigate a delicate balance between short-term demands and long-term fiscal sustainability, both of which are vital for fostering economic growth in the future. Malaysia's exports declined by 0.3% y/y in September, following a revised 12% jump in August. Exports declined to major trade partners, namely to Singapore: (-1.2%), China (-2.9%), Japan (-12.1%) and Vietnam (-26%). On the other hand, imports rose by 10.9% y/y, lower than the 26.2% rise in August. This marked the 11th consecutive month of growth but softest increase since March, driven by weak domestic demand.

Japan: Japan's annual inflation rate decreased to 2.5% in September 2024, down from 3.0% the previous month, marking the lowest level since April. Electricity prices saw the smallest increase in three months as the effects of the energy subsidy removal in May diminished (15.2% y/y compared to 26.2% in August), while gas prices rose at a slower pace (7.7% y/y versus 11.1%). Meanwhile, the core inflation rate fell to a five-month low of 2.4%, down from 2.8% in August, surpassing the consensus estimate of 2.3%. The CPI dropped by 0.3% m/m, marking the first decline since February 2023.

China: China's GDP grew by 4.6% y/y in 3Q2024, slightly above market expectations of 4.5%. This represents the slowest annual growth rate since 1Q2023, attributed to ongoing challenges in the property sector, weak domestic demand, deflation risks, and global trade tensions. China's IPI rose by 5.4% y/y in September 2024, accelerating from a five-month low of 4.5% in August. This marked the fastest growth in industrial output since May and the first acceleration in five months, driven by government initiatives to boost growth.

Fixed Income

Global Bonds: After testing recent highs around 4.10%, last Friday saw UST yields slightly lower but maintained near those highs as players continue to be wary of incoming strong data, and US political risks. New stimulus measures from China's authorities also affected sentiment. As for US data, housing starts in September totalled 1,354k. Although this was lower than the upward revised 1,361k in August, the September number just slightly beat consensus expectation of 1,350k.

MYR Government Bonds: Government bond market closed mixed where losses were seen on shorter tenors but with some gains were found on the belly of the curve. Overall, sentiment was affected by the weak UST close the day before while there was a lack of interest in the afternoon session as focus turned towards the Malaysian Budget tabling.

MYR Corporate Bonds: Corporate bonds were mostly weaker last Friday as sentiment remained wary against continued global bond market losses while onshore sentiment was guarded amid the budget tabling in the afternoon session. Losses were mainly seen in the AA curves and there were limited flows on higher grade AAA names. Heavier flows were spotted on AA rated OSK MTN 03/29 at 3.95% and AA2 rated Benih Restu 06/25 done at 3.65%

Forex

US: The USD dipped on Friday after it rallied for past 12 days out of 14 as global risk appetite improved following new stimulus measures from China. From technical perspective, the DXY index also had crossed the RSI oversold threshold. Despite the dip, the dollar index was still up 0.6% for the week.

Europe: The euro climbed by 0.3% on Friday, marking its first gain in eight days. It was buoyed by the Chinese stimulus news, following the ECB's decision to lower eurozone interest rates by a quarter point last Thursday, which was widely expected. The pound performed well against the dollar, gaining 0.3%, following UK data that revealed retail sales in September exceeded expectations, providing investors with renewed confidence in the resilience of the UK economy.

Asia Pacific: China's yuan strengthened against the USD on Friday after the central bank introduced two funding initiatives aimed at boosting the stock market. These measures, including swap and relending programs, will initially inject 800 billion yuan (USD112.38 billion) into the market through newly established monetary policy tools. The yuan also had some supports from the firmer than expected economic growth data released during the session. Meanwhile, the JPY firmed as the national core inflation rate grew faster compared to what market was expecting.

Malaysia: The USD/MYR pair fell slightly but still within consolidation range. The pair's next leg could be coming from the US election, which is only 17 days away. While the improvement in risk appetite helped the ringgit last Friday, gains were limited as traders were waiting for the tabling of Budget 2025. For the coming year, we posit that the ringgit will continue to be dictated by external factors but there are some allure for the ringgit due to the expected lighter government bonds issuance next year.

Other Markets

Gold: Gold reached a new record high as the dollar and Treasury yields softened. Continued support came from expectations of further interest rate cuts by the Fed.

Oil: Brent crude fell by 1.9% per barrel on Friday, while WTI saw a drop of 2.1%. The decrease was attributed to lower demand projections from OPEC and the IEA, along with indications that geopolitical tensions in the Middle East were easing.

Source: AmInvest Research - 21 Oct 2024