Snapshot Summary

Global FX: DXY rose 0.4% on the back of economic data

Global Rates: UST yields fell sharply on safe-haven demand

MYR Bonds: Local govvies pressured after the previous day's UST losses

USD/MYR: Ringgit dropped from its three and a half year high

Macro News

Malaysia: The S&P Global Malaysia Manufacturing PMI fell to 49.5 in September 2024, down from 49.7 in the previous two months, representing the lowest reading since April. This marks the fourth consecutive month of contraction in the manufacturing sector.

Eurozone: The annual inflation rate in the Eurozone decreased to 1.8% in September 2024, the lowest level since April 2021, down from 2.2% in August and below the forecast of 1.9%, according to preliminary estimates. This marks inflation falling below the ECB's target of 2%. Energy prices dropped significantly by 6% y/y compared to a 3% decline, while annual inflation for services slowed slightly to 4% from 4.1%.

US: The ISM Manufacturing PMI remained at 47.2 in September 2024, unchanged from August and slightly below the expected 47.5. This reading signals a continued contraction in the manufacturing sector, which has persisted for six consecutive months. Demand remains weak, output has declined, and input conditions are accommodating. The number of job openings increased by 329,000 to reach 8.040 million in August 2024, up from a revised figure of 7.711 million in July and surpassing market expectations of 7.655 million.

Fixed Income

Global Bonds: On Tuesday, bond yields fell sharply as fresh missile strikes from Iran on Israel escalated geopolitical tensions in the region. While the ball to retaliate is in Israel's court, the said strike heightened regional instability and drove investors toward safer assets. Meanwhile, US economic data released on Tuesday added more complexity to the market outlook. Job openings for August surpassed expectations, coming in at just over eight million. On the manufacturing front, data from S&P Global revealed the sharpest decline in new orders since June 2023. Similarly, the Institute for Supply Management's manufacturing PMI showed continued contraction in U.S. manufacturing activity throughout September, indicating ongoing struggles in the sector.

MYR Government Bonds: Bonds onshore were pressured early after the previous day's losses in the global bond markets, backed by Fed Powell's comments that the Fed would take its time to lower rates. On the other hand, there was a pick-up in the afternoon session, where we suspected demand mainly came from offshore investors.

MYR Corporate Bonds: Yesterday, there was continued mixed trading in the corporate bond market. Flows were light, and we noted small amounts done on various names, especially on AA and A papers. On the non-GGs, volume was led by DRB 08/31 (AA-), which fell 8 bps to 4.12% on MYR30 million and Mercedes Benz 08/26 (AAA) at 3.75%, unchanged at 3.75% with about MYR30 million traded.

Forex

US: On Tuesday, the DXY index climbed notably, rising 0.4% and rebounding from the circa 100.5 level. The upward drive came on the back of economic data that painted a picture of a resilient U.S. economy, just a day after Federal Reserve Chair Jerome Powell downplayed the chances of a sharp 50 bps rate cut in the upcoming Fed meeting. The dollar also found some support after news reports that Iran is preparing to launch a ballistic missile attack against Israel imminently.

Europe: The euro faced pressure, dropping 0.6%, following remarks from ECB officials that leaned on the dovish side. ECB President Christine Lagarde addressed parliament, expressing optimism that recent economic developments have bolstered confidence in inflation returning to target levels soon. She suggested that this progress would be a key consideration in the upcoming policy decision on October 17. Also, ECB policymaker Olli Rehn emphasised that slowing inflation in the eurozone gives more excellent justification for an interest rate cut in the upcoming meeting as data revealed that inflation in the eurozone fell below 2% for the first time since mid-2021 in September, providing further evidence of easing price pressures.

Asia Pacific: The Japanese yen was stable on safe-haven bids following developments in the Middle East. In the meantime, markets received a signal for a rate hike pause during the latest BoJ September meeting; policymakers debated the need for caution when considering interest rate hikes due to uncertainties in global markets made the economic outlook more uncertain. The meeting's summary reflected concerns that moving too quickly could destabilise the situation, reducing the likelihood of a near-term rate hike. The CNY was stable at 7.019 as Chinese markets were closed due to the National Day holiday.

Malaysia: The ringgit weakened and dropped from its three and a half year high after Fed Chair Jerome Powell pushed back against larger rate cut in the prior session and amidst flight to safety after geopolitical tension noises coming out of the Middle East.

Other Markets

Gold: Gold was supported by safe-haven demand, though gains were pared. The metal had been pressured the day before after Powell said rate cuts may be gradual.

Oil: Oil rose as fears over escalating Middle East turmoil intensified. Brent crude rose by 2.5% overnight.

Source: AmInvest Research - 2 Oct 2024