AmInvest Research Reports

AmInvest Market Wrap-up for the Week ended 10 January 2025

AmInvest
Publish date: Mon, 13 Jan 2025, 09:57 AM
AmInvest
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Snapshot Summary

Global Rates: Yields surged as data supports FOMC signalling of lessened rate cuts in the coming year

MYR Bonds Onshore government bonds was affected by weak global market sentiment but was otherwise supported by start-of-year demand

Global FX: USD was buoyed by US labor data and lower risk appetite

USD/MYR: Ringgit was steady as focus shift towards this week's advanced

GDP data

Fixed Income

Global Bonds: US Treasury yields surged to their highest since late 2023 after US non-farm payrolls (NFP) increased by 256k in December. Bond trading suggests the Federal Reserve will wait at least by mid-year before considering its next rate cut. Minutes of the December FOMC meeting suggesting policymakers were biased towards slowing the pace of rate cuts added to the bond market selling action. Bund yields followed the UST higher, whilst inflation stuck at +2.4% in December added to the weak bund trading.

Malaysia Government Bonds: Government bonds closed mixed last week. There was a cautious tone to trading ahead of the NFP release. However, earlier last week, there was support for govvies as we suspect onshore players were adding bonds to their portfolios at the start of the year.

Malaysia Government Bonds View: Authorities released details for the auction of the 15Y GII (GII 07/40), with size of MYR3.0 billion for the public tender and additional MYR1.0 billion to be issued in a private placement. Total issuance is smaller than expected and likely reflects the government's effort to reduce this year's fiscal deficit, slated to be at 3.8% of GDP. We anticipate the auction to garner encouraging demand in view of the small amount.

Malaysia Corporate Bonds: Corporate bond trading was sideways last week. Sentiment was negatively affected by cautious govvies trading ahead of the weekly closing. However, we also noted corporate bonds were supported by investors picking up bonds as they continue to fill their portfolios at the start of the year.

Malaysia Corporate Bonds View: We foresee demand bias towards higher grade papers (especially AAA) as investors pick up more bonds at the start of the year. However, look out for yield realignment along Air Selangor 31s up to 37s, where Air Selangor 10/36 looks pricey at 4.0%.

Forex

DXY Index: The DXY posted a steady climb over the past week, buoyed by robust US labour market data and lingering caution around global growth prospects. Non-farm payrolls above expectations reinforces the view that the US economy remains on solid footing. Soft spots were spotted through the lower-than-expected ADP employment changes, but market participants took greater note of the strong NFP figure. The cautious tone in the FOMC meeting minutes confirm that Fed officials are largely maintaining a wait-and-see approach. Still, the dollar found additional support as traders sought safety amid elevated geopolitical and trade tensions. Fresh new sanctions on Russian oil prompted Brent to surge 3.7% on Friday, the largest daily gain since October. Rumours of a Biden administration plan to further cap Nvidia chip exports also dampened global risk appetite. Looking ahead, a string of data releases - including US consumer sentiment and retail sales - could shape near-term dollar direction. A strong read on spending patterns would reinforce the Fed's confidence in the underlying economy, potentially pushing the DXY higher. Conversely, any signs of disinflation or a pullback in consumer activity may prompt traders to question the durability of the greenback's recent gains. Focus will also remain on the Fed's messaging. Hints of a more cautious tone on growth could contain further dollar upside, while any hawkish shift on inflation risks could reignite broader demand for the greenback.

Europe: EUR/USD reached its lowest level since November 2023. Early optimism stemmed from better-than-forecast Eurozone manufacturing PMIs, which briefly lifted the euro. However, a softer set of German factory orders and Eurozone's economic sentiment dampened positive sentiment in the region, allowing the dollar's strength to cap any sustained gains in the pair. Over in the UK, GBP/USD initially caught a bid initially, but momentum faded into the weekend as traders weighed BoE officials' cautious remarks on potential fiscal tightening and the lingering uncertainties around public finances - particularly the elevated debt levels. GBP posted larger losses of 1.7% w/w. On outlook for the euro, upcoming Eurozone CPI data revisions and remarks from ECB officials will be key catalysts. While the focus so far has been heavily favouring the USD but any hawkish hints regarding future rate moves may support EUR/USD, but the pair remains vulnerable if growth data disappoints. In the UK, attention turns to fresh GDP releases; strong numbers could offer sterling a lift, but markets remain wary of a potential slowdown in consumer spending or unexpected fiscal measures. Overall, both pairs may trade off broader dollar moves, with sentiment swings likely to dominate during a data-packed week.

Asia: The USD/JPY pair climbed higher as traders reassessed BoJ's willingness to further raise its interest rate anytime soon. Traders were not so sure that the central bank would drop a rate hike during the upcoming BoJ meeting. However, higher consumer spending and wage growth, alongside with news flows suggesting the BoJ may raise its inflation outlook, pushed the probability of a hike at this upcoming meeting to slightly above 50%. Meanwhile, the yuan continue to grind lower, hitting its weakest level since August 2023 with key psychological USD/CNY resistance level oof 7.35 in sight. The yuan briefly found support as the PBoC continue to set the daily yuan fixing firmer than market estimates. Yet, concerns that China will be the largest target of Trump's tariff plan sustained. The PBoC's surprising move to halt government bond purchases supported the yuan but the quick reversal after that suggests markets continue to short the CNY. Among the commodity dollars, both the Aussie and the Kiwi saw choppy action and could not take advantage from the spike in oil prices (Brent was up 4.2% w/w). The Singapore dollar also slipped, reflecting caution over regional growth despite stable local indicators.

Malaysia: The Malaysian ringgit was on the back foot for most of last week. A generally firmer US dollar pushed USD/MYR higher and erased early MYR gains. Domestically, some good news such as a larger-than-expected growth in industrial production aided ringgit to gains last Friday, but those gains were already erased as Monday's ringgit intraday high has already reached 4.52. USD/MYR's trajectory will continue to hinge on broader global sentiment, and, currently, markets remained focused on dollar buying. This Friday's advanced Malaysia GDP data would provide a clearer picture on Malaysia's economic standing as we enter 2025. Meanwhile, regional currencies mostly closed on the weaker side last week. Consensus expectation for 4Q2024 Malaysia GDP is +5.2% y/y (+5.3% in 3Q2024).

Source: AmInvest Research - 13 Jan 2025

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