Snapshot Summary

Global FX: The dollar was traded weak after the Fed's 25bps rate cut

Global Rates: US Treasury yields fell as Fed rate cuts and yield curve remained relatively steep

MYR Bonds: Local govvies attracted bids as focus returned to global rates direction

USD/MYR: The ringgit ended Thursday at 4.4043 after erasing the session's losses

Macro News

Malaysia: Retail sales in Malaysia rose by 5.5% y/y in September, reflecting a slight slowdown from the 5.9% growth recorded in August. Meanwhile, wholesale trade growth dipped slightly to 3.6%, down from 3.7% in the previous month. On a month-to-month basis, retail activity saw a 0.5% increase in September, following a 1% rise in August.

UK: The Bank of England (BoE) reduced its Bank Rate by 25bps to 4.75% in November, marking the second rate cut in four years. This decision aligns with indications of slowing price growth in the UK, as September's inflation rate fell to a three-year low of 1.7%. Additionally, services inflation, which typically reflects more persistent price trends, dropped to a two-year low of 4.9%, although it remains relatively high. Despite the ongoing decline in underlying inflation in the medium term, the Bank anticipates that the expansionary budget introduced by the Labour Party could raise inflation by 0.5% at its peak.

US: US Initial Jobless claims edged higher by 3,000 from the previous week to 221,000 in the last week of October, aligned with market expectations.

Meanwhile, the Fed reduced the federal funds target range by 25bps to 4.5%-4.75%, following a substantial 50bps cut in September, as anticipated. Policymakers emphasised their commitment to evaluate incoming data thoroughly, the changing economic outlook, and the associated risks before making further adjustments to interest rates. During the subsequent press conference, Chair Powell stated that the Fed is not following a predetermined path and will make decisions on a meeting-by-meeting basis. He also suggested that a pause in December is possible, depending on the incoming data.

Fixed Income

Global Bonds: US Treasury yields fell as the Fed cut rates, though policymakers also indicated that economic growth looks solid. In any case, traders took note of the cut amid the recent weak jobs data as the decision was unanimous amongst the FOMC voters to reduce the FFR by 25 bps to the range of 4.50%-4.75%. The yield curve remained relatively steep at 13 bps spread between the 10Y against the 2Y amid the Fed rate cut cycle and anticipation of incoming inflation pressures after the Republican win in the presidential and Senate elections. UK bond yields also fell as the BoE cut rates, but it indicated possibly gradual rate reductions in the future amid firm inflation and growth expectations.

MYR Government Bonds: The local bond market was seen attracting bids yesterday as focus returned to global rates direction ahead of the FOMC meeting. Yields fell in the 1-3 bps range along select MGS benchmarks. The central bank announced details for the auction of MGS 04/39, but WI trading was quiet.

MYR Corporate Bonds: Corporate bond trading lagged behind the better sentiment in the govvies space. Still, if MGS continues to show firm performance, especially on the back of lower UST yields overnight, we could see better credit trading today. However, yesterday's market was mixed with select AAA and AA grade papers showing yields moving sideways. Leading the flows include AA3 BGSM 08/25, which shed 1 bps to close at 3.72%, and AAA rated Danum 02/34, which rose 1 bps to 4.06%,

Forex

US: The dollar was traded weak on Thursday after the Fed reduced interest rates and refrained from offering any guidance on the future rate cut trajectory. Fed Chair Jerome Powell, during the press conference, said that he would not leave his post even if asked to.

Europe: The EUR/USD pair rose 0.7%. Meanwhile, in German's political space, the opposition leader Friedrich Merz urged Chancellor Olaf Scholz to face a vote of confidence by early next week, a day after Olaf fired his Finance Minister Christian Lindner, potentially setting the stage for new elections as early as mid-January. The British pound is also on the front foot following BoE's decision to reduce interest rates for the second time this year. However, the central bank maintained its cautious stance on the premise that the current budget could potentially increase inflation by up to 0.5%.

Asia Pacific: The Japanese yen firmed by 1.1% against a weaker dollar following a statement from Japan's chief currency official, Atsushi Mimura, who indicated that authorities would intervene appropriately in response to excessive or abrupt currency fluctuations. The Chinese yuan recouped some of its losses from the previous session. Market players anticipate potential stimulus announcements on Friday as China's top legislative National People's Congress (NPC) body wraps up its meeting.

Malaysia: The MSCI's index for emerging currencies rose 0.2% while the MYR erased its early session's losses to end Thursday at 4.4043 as the recent fall after US elections was seen as overdone. In an event yesterday, BNM's Governor, Dato' Seri Abdul Rasheed Ghaffour, said that the monetary policy adjustment made by global central banks and recent US elections have led to heightened volatility in global financial markets. Still, the narrowing interest rate differentials between Malaysia and others that are easing are positive for the ringgit.

Other Markets

Gold: Gold recouped part of the prior day's loss as it gained near USD50 per oz, aided by the Fed rate cut and a lower dollar.

Oil: Crude oil closed firm overnight as the dollar, which oil is traded in, fell as the Fed cut rates. WTI was seen supported despite the EIA reporting US oil inventories rose by 2.1 million barrels last week, more than expected, as exports fell.

Source: AmInvest Research - 8 Nov 2024