Snapshot Summary

Global FX: Dollar lost its initial gains on Wednesday due to weak US economic data

Global Rates: UST gains reversed earlier losses on the back of Fed-speak

MYR Bonds: Local govvies remained steady, with 10Y MGS closing at 3.78%

USD/MYR: Ringgit firmed up by 0.4% to close at 4.453

Macro News

Australia: Australia's GDP grew by 0.3% q/q in 3Q2024, following a 0.2% increase in the previous three quarters. This marked the 12th consecutive quarter of growth but fell short of market expectations of 0.4%.

UK: The S&P Global UK Services PMI was adjusted upwards to 50.8 in November from an initial estimate of 50, though it decreased from October's 52. This suggests some growth in business activity but slower since the current expansion phase began in November 2023. Service providers reported significant challenges due to increased economic uncertainty and concerns over tax hikes outlined in the Autumn Budget.

US: US ADP employment change added 146,000 workers to their payrolls in November, marking the smallest increase in three months, following a downwardly revised gain of 184,000 in October. Although the data missed the forecast of 150,000, it suggests the US labour market is still solid.

The ISM Services PMI in the US dropped to 52.1 in November from 56 in October, falling short of forecasts of 55.5. This indicated the slowest growth in the services sector in three months. Steve Miller, Chair of the ISM Services Business Survey Committee, noted that comments from respondents were generally neutral to positive, with mentions of seasonality, election ramifications, and tariffs.

Fixed Income

Global Bonds: The UST market strengthened on the heels of the ADP employment report showing private payrolls rose by less than expected, while the ISM Services index for November was also weaker than expected. The UST gains reversed earlier losses on the back of Fed-speak. Fed chair Powell signalled that the US economy remains resilient and that inflationary pressures were persistent. St. Louis Fed President Alberto Musalem said the pace of rate cuts is less clear due to the difficulty in achieving the Fed's inflation target. In Europe, bonds were supported amid political risks in France after PM Michel Barnier used a constitutional mechanism to push through a controversial social security bill without parliament approval. ECB policymaker Robert Holzmann hinted at a 25 bps cut at the upcoming policy meeting.

MYR Government Bonds: Malaysian government bonds remained steady, and we particularly noted the 10Y MGS rallying by 3 bps to close at 3.78% with a volume of about MYR300 million. We think players were reacting to BNM's announcement of the next reopening auction for the 10Y MGS (MGS 07/34) at just MYR2.0 billion issuance.

The small size of the issuance and cancellation of this month's 3Y GII suggest the government should be able to achieve its 4.3% fiscal deficit target this year despite a slower-than-expected increase in direct tax collection.

MYR Corporate Bonds: Ringgit corporate bonds closed mixed, and we think investors may be awaiting more concrete signs of stability in the MGS trading before placing fresh bets in PDS. Various PDS names moved sideways with no particular theme to the trading activity. YTL Power (AA1) led the flows where the 03/37 tranche moved 1 bps lower to 4.13% and the 10/39 tranche rose 1 bps to 4.19%.

Forex

United States: The DXY gave up its early gains on Wednesday due to weaker-than-expected US economic data, including the November ADP employment change and ISM services index. While initially supported by euro weakness and hawkish comments from Fed officials, including Chair Powell's remarks on the US economy's "remarkably good shape" and "can afford to be more cautious in lowering rates", the dollar softened amid mixed signals from economic reports. The Fed's Beige Book showed businesses are optimistic about future demand but were worried about Trump tariffs 2.0. That said, investors are anticipating the release of non-farm payrolls data to make their next move and an upside surprise data could send the DXY to test 108-level.

Europe: The euro was volatile amidst political turmoil in France, where a no-confidence motion against Prime Minister Michel Barnier is expected to lead to his resignation and deepen the eurozone's political crisis. Investors also weighed comments from ECB President Christine Lagarde, who signalled continued rate cuts ahead but refrained from saying exactly how fast it will be. The GBP went up slightly after the BoE Governor Andrew Bailey sounded cautious in his speech. He signalled the potential for four rate cuts over the next year, contingent on inflation's downward trajectory, while emphasising the need for restrictive monetary policy until risks to the 2% inflation target subside.

Asia Pacific: The Japanese yen weakened 0.7%, erasing some of the past weeks' gains as markets readjusted their pricing for the December hike as some newsflows suggested policymakers are taking a cautious route amidst political uncertainty. In China, the PBoC continues taming the bears by setting the yuan daily fixing at around 900 pips stronger than market estimates. On Tuesday, Beijing also stepped up its retaliatory trade tariff threats against the US, proclaiming a ban on key minerals exports to the US, including gallium, germanium and antimony, all of which are important for semiconductors, military equipment and general industrial use.

Malaysia: Ringgit found some upward drive, up 0.4% to 4.453. In tandem, some bullish trades in the Malaysian govvies space, following a smaller issuance announcement by the BNM, may have supported the ringgit on the back of suspected foreign inflow. This also aligns with Malaysia's government commitment to achieve its fiscal deficit target.

Other Markets

Gold: Gold remained steady following modest gains as the market absorbed comments from the head of the Federal Reserve.

Oil: Crude oil declined as traders anticipate the OPEC+ meeting on Thursday with the cartel, which is expected to postpone the decision to reactivate idle capacity in a market that is already well-supplied.

Source: AmInvest Research - 5 Dec 2024