Snapshot Summary

Global FX: Dollar continued to drive upwards as the US bond yields maintained highs

Global Rates: UST yields up with traders wary over US politics and rates direction

MYR Bonds: Continued UST weakness meant more weakness for MYR bonds

USD/MYR: MYR and Asian FX remained pressured by strong USD

Macro News

New Zealand: New Zealand posted a trade deficit of NZD2.1 billion in September, a reduction from the previous year's NZD2.4 billion deficit recorded in the same month. Exports rose by 5.2% y/y, driven by significant increases in fruit shipments (+105%), dairy products like milk powder, butter, and cheese (+15%), logs and wood products (+7.3%), and machinery and equipment (+12%). Conversely, imports decreased by 0.9% y/y, totalling NZD7.1 billion.

US: Richmond Fed Manufacturing index registered at -14 in October, indicating a decrease in pessimism compared to the -21 recorded the previous month. However, this marks the twelfth consecutive month of negative readings, highlighting a full year of declining activity.

Fixed Income

Global Bonds: Yields remained near two-month highs as traders remained wary of the rising US inflation outlook in case of a Trump election win and hedging against the anticipated controlled pace of Fed rate cuts. At the same time, traders are pricing in continued high US fiscal deficits, which could prompt more UST issuances if either Trump or Harris wins the presidency.

MYR Government Bonds: The continued weakness in UST also weakened onshore government bonds. Yields were higher, especially on papers up to 10Y, which rose 5-6 bps. Meanwhile, longer-dated tenors continued to weaken on the back of duration play as traders continued to digest last Friday's budget, where there may be rising inflation risk from possible fuel subsidy rationalisation next year.

MYR Corporate Bonds: The corporate bond market weakened further yesterday, given the continued run-up in UST and MGS yields. Amongst the trades yesterday include realignment on a couple of AA1 YTL Power, where its 08/28 was steady at 3.84% and 08/29 rose 2 bps to 3.89%.

Forex

US: On Tuesday, the dollar index climbed to 104.08, reaching its highest level in two and a half months. The rise in UST yields contributed to the dollar's gains. Additionally, positive news from the Richmond Fed's October manufacturing index, which hit a four-month high, provided further support for the dollar. We also noted some EUR selling against the dollar.

Europe: The euro fell as policymakers expressed worries about the state of the Eurozone economy. On Tuesday, central bank governors from France (Villeroy), Portugal (Centeno), and Finland (Rehn) highlighted concerns that the weak economy may be putting excessive downward pressure on prices. Additionally, ECB President Christine Lagarde did not dismiss the possibility of more significant action in upcoming meetings.

Asia Pacific: The yen remains under pressure following recent comments from the BoJ, indicating that officials see no urgency in raising interest rates. Additionally, higher UST yields on Tuesday further weighed on the yen. On another note, BoJ Executive Director Takeshi Kato noted that the central bank closely monitors rising risks from higher import prices as the yen weakens. The CNY edged lower on Tuesday against a stronger dollar as investors closely monitored developments ahead of next month's upcoming US elections.

Malaysia: Asian currencies, including the ringgit, were pressured by the dollar's outperformance. USD/MYR rose 0.5% to its highest since 13 September.

Other Markets

Gold: Gold reached a new record high for the fourth consecutive session on Tuesday despite the recent rise in yields and the dollar.

Oil: Brent and WTI increased by over 2%, aided by continued Middle East concerns and by China's additional measures to stimulate its struggling economy.

Source: AmInvest Research - 23 Oct 2024