Snapshot Summary...

Global FX: The dollar swung as traders continue to digest Fed's jumbo rate cut

Global Rates: Sentiment was mixed and still reacting to the Fed decision

MYR Bonds: Malaysia's government bonds were boosted by the MYR rally

USD/MYR: The ringgit gained past our support range and around its highest level since June 2022

Macro News

Malaysia: Malaysia's exports increased by 12.1% y/y in August 2024, reaching MYR129.2 billion. This growth exceeded expectations of 11.7%, although it was slightly lower than July's 20-month peak of 12.3%, primarily due to declines in mining exports. Manufacturing exports rose by 14.1% y/y, driven by a 16.5% y/y increase in electrical and electronic products. Imports jumped by 26.1% y/y, outpacing market expectations of 21.2% and followed a 25.4% increase in July. Marking the 10th consecutive month of growth, this was the fastest rise since October 2022, driven by strong domestic demand.

United Kingdom: BoE maintained its Bank Rate at 5% at its latest meeting, following a 25 bps cut in August (which had marked the first reduction in over four years). The latest decision aligns with market expectations, although one member advocated for an additional cut of 0.25% to 4.75%. Annual inflation stood at 2.2% in August and is projected to rise to approximately 2.5% by the end of the year, as last year's decreases in energy prices drop out of the annual comparisons.

New Zealand: New Zealand's economy contracted by 0.2% q/q in June 2024, following a downward revised 0.1% growth in the previous quarter. This outcome was below market expectations of a 0.4% decline and ended two consecutive quarters of growth. The downturn was primarily driven by declines in retail trade and accommodations, which fell by 1.3% q/q (compared to 0.0% in Q1), as well as decreases in agriculture, forestry, and fishing by 1.4% q/q (also compared to 0.0%), and wholesale trade, which decreased by 1.3% q/q (versus -1.5% previously).

Fixed Income

Global Bonds: US Treasuries closed mixed. The 2Y yield fell 4 bps to 3.58%, one day after the 50 bps FOMC rate cut. Sentiment on the front of the curve was still reacting to the Fed decision. However, the 10Y UST edged higher by 1 bps to close at 3.71%. The release of a decline in the US weekly initial jobless claims, to 219k in the week ended 14 September from 231K the week before, pressured the 10Y yield.

MYR Government Bonds: Malaysia's government securities closed mixed yesterday. There were gains on the front of the curve which was aided by the MYR rally, but the rest of the curve showed profit taking activity especially after the UST posted losses the day before. We have the MYR5.5 billion reopening today, the size which is larger than expected around MYR4.5-5.0 billion.

MYR Corporate Bonds: Corporate bond trading was mixed, to go alongside the sideways MGS trading yesterday. We noted investors opting to buy up select AA papers instead of the usual higher grade papers, which was encouraging as it shows underlying demand for credits remains healthy. Notable trades include AA1 Genting Cap 06/27 at 4.34% (unch) and AA- Johor Port 10/27 at 3.77% (-26 bps).

Forex

United States: The dollar swung largely from gains to losses as markets continue to digest Fed's jumbo rate cut decision. However, the dollar pared losses after data showed initial jobless claims dipped lower than what the markets were expecting. On another note, the swap market is now pricing in 72.4 bps rate cut by the end of this year, which is more than what the updated median FOMC dot plot projections indicate.

Europe: The EUR also had its volatile session and closed the day gaining 0.4% to 1.116. In the UK, the GBP gave up ground immediately after the BoE decided to hold its key interest rates at 5.0%, though later recovered those losses to finish the day with 0.5% daily gains. The BoE warned investors that it will take the easing cycle in a more measured and gradual path.

Asia Pacific: The Japanese yen whipsawed but ended the day slightly weaker by 0.2% on the day. Investors are bracing themselves ahead of BoJ meeting later today. In China, the yuan strengthened 0.2% to finish at 7.063, hovering around its strongest level since June last year. Bloomberg news flow suggests the gain in yuan was contributed by dollar selling by exporters after the Fed rate cut.

Malaysia: On Thursday, ringgit gained further to 4.207, past our support range of 4.225-4.295 and around its highest level since June 2022, which effectively erased losses incurred when the Fed started its rate hike cycle. Our new support level is now pinned at around 4.173 - 4.187.

Other Markets

Gold: Gold continued to strengthen and kept near its record high. Release of lower initial jobless claims aided gold. Record high above USD2.600 per oz was reached after the Fed decision this week.

Oil: Brent rose 1.7% overnight as the large Fed rate cut helped expectations of a soft landing in the US. Also pushing Brent higher was continued Middle East risks.

Source: AmInvest Research - 20 Sep 2024