Snapshot Summary

Global FX: The Dollar traded higher on unexpected labour data and ISM services data

Global Rates: UST yields rose further as the 10Y reached an eight-month high

MYR Bonds: Local govvies were supported by a strong interest in the reopening of 7Y MGS

USD/MYR: The ringgit took advantage of other steady Asian currencies by rising 0.5%

Macro News

Eurozone: According to preliminary estimates, the annual inflation rate in the Euro Area increased for the third consecutive month, reaching 2.4% in December 2024 from 2.2% in November 2024 and meeting expectations. This year-end increase was anticipated mainly due to base effects.

The unemployment rate in the Euro Area remained at a record low of 6.3% in November, unchanged from October and matching market expectations.

US: US ISM Services PMI increased to 54.1 in December 2024 from 52.1 in November, surpassing market expectations of 53.3. This was the 10th instance of the composite index being in expansion territory this year.

US job openings increased by 259,000 to 8.098 million in November 2024, up from a revised 7.839 million in October and surpassing market expectations of 7.70 million.

Fixed Income

Global Bonds: US Treasury yields rose further, and the 10Y level hit an eight-month high as players reacted to firm economic data releases and amid auctions this week. Auctions this week include USD58 billion in 3Y notes, USD39 billion in 10Y notes, and USD22 billion in 30Y bonds. Yesterday, the 10Y auction saw decent demand at 2.53x bid cover. Aside from that, Gilt yields have been at their highest since October, based on expectations of fewer BoE rate cuts, which is in line with reduced Fed cut expectations.

MYR Government Bonds: The ringgit government bond market was supported as traders took a cue from the strong bidding interest in reopening the new 7Y MGS, where the final BTC ended at 2.808x. We suspect the auction interest was from both local and foreign players amid the hunt for yield pick-up and that the number of 7Y MGS auctions is reduced to two this year from three in 2024.

MYR Corporate Bonds: The ringgit corporate bond market also saw better bids yesterday, coinciding with the firm sentiment in the govvies space. Flows were led by select papers such as AA1 rated Johor Plantation 09/34, which fell 1 bps to 4.02% ok MYR50 million traded, and AAA rated PLUS 01/38, which fell 3 bps to 4.05% on MYR40 million volume.

Forex

US: The dollar turned green to shoot higher and erased its early session losses after unexpected job openings rose. Services data showed accelerating inflation, prompting traders to reduce their rate cut expectation during the current cycle. The CME FedWatch tool suggests the Fed may pause the cut cycle as early as this month, with 95.2% probability of a rate pause. At the point of writing, the market is pricing in the next cut to only come in June 2025.

Europe: The euro slipped 0.5%, extending its pullback despite initial support from fresh data showing euro zone inflation ticking up to 2.4% in December. An ECB survey also revealed rising household inflation expectations, putting pressure on policymakers to stay vigilant, yet traders remain cautious given the region's mixed economic outlook. Meanwhile, the GBP also fell by a smaller margin of 0.3%.

Asia Pacific: The yen extended its losses to levels not seen since July. News flows suggested that this is on the back of overseas yen selling via Nippon Individual Saving Account (NISA) accounts and the Tokyo fixing, triggering a warning from Finance Minister Kato as the currency nears the 158-159 range. With the BOJ's next rate move still in limbo and a strong US jobs report potentially delaying Fed rate cuts, traders are bracing for further yen depreciation unless policymakers step in or any hawkish signals emerge. The yuan hovered near a 16-month trough despite a firmer-than-expected PBoC yuan fixing midpoint, weighed down by falling Chinese bond yields, renewed trade tensions ahead of Trump's return, and the dollar's bullish momentum.

Malaysia: We noted that the Asian FX were mixed, but the ringgit took advantage and gained 0.5% on the day. While this can be considered a delayed reaction to the media's suggestion that Trump pursues a less aggressive tariff tone, we think the ringgit today is more vulnerable following stronger-than-expected US data last night.

Other Markets

Gold: Gold shook off two days of losses to trade higher on Tuesday, even as the dollar and Treasury yields climbed, with prices up 0.5% to USD2,649/oz. The upward movement came from data showing China's central bank bought more gold with its precious metal reserves, which rose to 73.3 million oz in December 2024 from 73 million oz in the prior month.

Oil: Crude oil rose on supply concerns as China's Shandong Port Group tightened restrictions on US-sanctioned vessels, while colder weather across the US boosted demand.

Source: AmInvest Research - 8 Jan 2025