Snapshot Summary

Global FX: US inflation data supported the dollar, though the outlook for a Fed cut this month remains strong

Global Rates: Despite in-line US m/m inflation, UST was negatively affected by rising US government debt fears

MYR Bonds: The onshore market continued to see profit-taking activity and realignment in credit yields

USD/MYR: MYR fell in tandem with CNY, which was affected by Chinese authorities eyeing weaker currency in the coming year

Macro News

Malaysia: Retail sales in Malaysia rose by 7.1% y/y in October, up from a 5.5% increase in the previous month. as figures were also influenced by seasonal factors, like Deepavali celebrations and school holidays, which increased foot traffic in retail outlets. This marked the strongest growth in retail sales since June.

US: The annual inflation rate in the US increased for the second consecutive month to 2.7% in November, up from 2.6% in October, meeting expectations. This rise is partly due to low base effects from the previous year. Meanwhile, the core annual inflation rate remained at a three-month high of 3.3%, consistent with October and September and in line with market expectations. US CPI and core CPI were sustained at 0.3% each, meeting expectations.

Fixed Income

Global Bonds: Despite in-line US CPI and core CPI m/m increases, yields rose on longer-tenor UST papers on US debt concerns after the US government reportedly posted a US367 billion budget deficit for November, or 17% higher than a year earlier, and that the Treasury Department has borrowed USD624 this fiscal year and USD2.1 trillion in the past year. The UST market was also cautious amid more auctions this week, but there was firm demand overnight at the USD39 billion sale of 10Y UST, where BTC was 2.70 times the highest since March 2022.

MYR Government Bonds: Yesterday, more profit was made in the government bond market. Notably, we noted the 7Y MGS edging up slightly in yield on a heavy volume of nearly MYR500 million. The sentiment was guarded ahead of US CPI data after-hours yesterday.

MYR Corporate Bonds: Similar to the govvies segment, the corporate bond market sentiment was also cautious. We saw more realignment on selected names. Air Selangor 01/43 (AAA) fell 4 bps to 4.14%, and its 08/44 tranche closed unchanged at 4.16%. Elsewhere, AAA-rated PLUS 01/36 and PLUS 01/37 closed unchanged at 4.00%.

Forex

United States: The dollar index closed 0.3% higher, extending daily gains to four straight days and hitting a two-week high. An uptick in the November CPI print may have supported the dollar but does not nudge the market in pricing, which is more likely to result in a 25 bps Fed cut next week. According to the CME FedWatch tool, markets are looking at a 98.6% chance for a 25 bps cut, up from 88.9% prior to data release and 78.1% in the prior week. We also suspect the higher dollar could come from some selling on CNY and JPY.

Europe: The EURUSD pair fell further and closed near the 1.05 level. Markets now await the ECB policy decision later today. While a 25 bps cut is fully expected, markets will scrutinise the post-decision sentiment to gauge the outlook for ECB rates. In the meantime, the GBP fell to close at circa 1.275, still maintaining its new consolidation range.

Asia Pacific: The onshore yuan weakened after news flows suggested that China may let the yuan weaken in 2025 to offset the US's promised 60% tariff on Chinese goods. This signals a shift to a looser monetary policy that could pressure other currencies exposed to CNY. Additionally, the Japanese yen closed weaker to its two-week low despite earlier data showing producer inflation in Japan surged to its highest level since July 2023. The yen was under pressure after news reported that the BoJ officials saw "little costs" in waiting before raising interest rates.

Malaysia: In tandem with the fall in Asian currencies following reports that China may let its currency weaken, the ringgit slipped as well amidst another day of tight trading range and ahead of after market close US CPI data release. Now that the data is out of the way and a 25 bps cut has been priced in, there is room for ringgit to gain on the back of narrowing rate differentials between the FFR and the OPR as the BNM left the key rate at 3.00% during the last meeting of the year last month. However, the risks are that those gains could be subdued, and more threats of trade barriers will be announced moving forward. And the recent reports suggesting the Chinese yuan could be weaker do not help the MYR either.

Other Markets

Gold: Gold continued its upward trend as m/m US inflation data met expectations, likely prompting a Federal Reserve interest rate cut next week.

Oil: Crude oil rallied due to new EU sanctions on Russian oil, while gains were limited by rising US fuel inventories and lowered OPEC demand forecasts.

Source: AmInvest Research - 12 Dec 2024