Snapshot Summary

Global FX: The dollar held steady as traders evaluated the Fed's future interest-rate decisions

Global Rates: UST yields edged up slightly on higher US CPI data

MYR Bonds: Local govvies traded on weak footing

USD/MYR: Ringgit fell in tandem with other Asian currencies

Macro News

Australia: Consumer inflation expectations in Australia dropped to 4.0% in October 2024, down from 4.4% in the previous month, reaching the lowest level since October 2021. This decrease coincides with a continued decline in the inflation rate over recent months. In August, the monthly CPI increased by just 2.7% y/y, the lowest rate in three years, falling within the central bank's target range of 2% to 3% for the first time since August 2021, partly due to the effects of the Energy Bill Relief Fund rebate.

Malaysia: The unemployment rate in Malaysia decreased to 3.2% in August 2024, down from 3.4% in August of the previous year, representing the lowest level since January 2020. The latest figure is in line with our forecast, with the annual average unemployment rate expected to be 3.3%.

US: The annual inflation rate in the US eased for the sixth straight month, dropping to 2.4% in September 2024, the lowest level since February 2021, down from 2.5% in August. Compared to the previous month, the CPI increased by 0.2% m/m, matching the rise in August and surpassing predictions of 0.1%. The annual core inflation rate unexpectedly ticked up to 3.3%, compared to 3.2% in the prior two months. US initial jobless claims increased by 33,000, totalling 258,000 and exceeding market expectations of 230,000. This represents the highest level in 14 months, primarily due to significant rises in Michigan and other states impacted by Hurricane Helene.

Fixed Income

Global Bonds: On the back of the slightly higher US CPI data, UST yields increased slightly overnight. The CPI data was important but ultimately was not entirely surprising, with the Labor Department indicating a +0.2% m/m rise in September after +0.2% m/m in August and a consensus of +0.1%. The 2Y UST remains holding slightly below 4%, and the 10Y is slightly above 4%. Excluding food and energy prices, inflation remained at +0.3% m/m in September. A comment attributed to Atlanta Fed President Raphael Bostic in the WSJ that he may be open to a rate pause in November also influenced an edging up of UST yields.

MYR Government Bonds: Ringgit government bond space continued to trade on weak footing, with benchmark papers generally up 1 bps across the curve. Sentiment continued to be guided by higher UST yields while caution was ahead of the US CPI data. Meanwhile, BNM announced details for reopening the 10Y GII (GII 11/34) at a total amount of MYR 4.5 billion with no private placement. The tender will close on 14 October, with issuance the next day.

MYR Corporate Bonds: More flows were seen in the corporate bond market, but yields were mostly higher, reflecting the current cautious sentiment in the local bond space; flows were led by various AA names, with AAA papers closely following suit. Larger trading was seen on papers such as AA2 rated Imtiaz 05/29 at MYR70 billion, which rose 3 bps to 3.86%, Amanat Lebuhraya 10/29 (AAA), which rose 4 bps to 3.79% and PLUS 01/28 (AAA) which fell 16 bps to 3.67%.

Forex

US: After climbing for eight consecutive sessions, the dollar held steady as traders evaluated the Fed's future interest-rate decisions. The focus shifted to increased unemployment claims, overshadowing the higher-than-expected inflation report. Last night, three Fed officials from the New York Fed, John Williams, Chicago Fed, Austan Goolsbee, and Richmond Fed Thomas Barkin, downplayed the significance of the inflation data, indicating that the Fed might continue to lower interest rates. However, Raphael Bostic from Atlanta expressed a different view, suggesting he might support a pause in rate cuts at the next meeting. We may see the DXY trade sideways moving forward as the Fed rate path is still partly cloudy as some market players are pricing in around 15% of no cut at all during the November meeting.

Europe: The EUR and GBP were steady, and investors digested US CPI data. For the former, the common currency reacted mutely from the latest ECB policy meeting minutes. When the policymakers met last month, they seemed satisfied with the decline in inflation. However, they advocated for a gradual easing of policies due to persistent price pressures, as revealed in their 12th September meeting minutes.

Asia Pacific: Asian currencies were mostly on the downside against the USD, but the JPY held its gains as there were some slight risks to the environment amidst concerns of natural disasters. In China, the yuan strengthened despite volatile trading. The central bank established a swap facility throughout the day to provide liquidity to institutional investors for stock purchases. This intervention led to a rebound in the CSI 300 Index on Thursday, recovering from a significant selloff the previous day.

Malaysia: The ringgit fell in tandem with Asian currencies struggles. The Fed's rate cut path seemed to be murky, with some bets for no cut either in November or December still there. This is even more so when last night's CPI data suggests the Fed would be cautious about easing its policy.

Other Markets

Gold: The precious metal went up 0.8% and ended its six-day losing streak as traders considered the potential scale of the Fed's interest-rate cuts for the remainder of the year. This shift in sentiment came in response to mixed signals from recent US inflation and labour data.

Oil: Oil prices surged, breaking a two-day losing streak with Brent climbing to reach USD80 per barrel, as the market anxiously awaited Israel's response to Iran's missile attack, keeping traders on edge.

Source: AmInvest Research - 11 Oct 2024