Snapshot Summary

Global FX: USD continuing on its bullish run

Global Rates: Yields lower on sustained rate cut expectations

MYR Bonds: Cautious sentiment prevailed ahead of Malaysia's Budget tabling

USD/MYR: The ringgit weakened in tandem with other Asian currencies

Macro News

UK: The unemployment rate unexpectedly fell to 4.0% in the three months to the end of August from 4.1% in the three months to the end of July. Meanwhile, average earnings, including bonuses, slowed from 4.1% to 3.8% in the same period. Looking ahead, inflation data will be the focal point for BoE's policy stance and markets' expectations of November and December cuts.

Japan: The country's industrial production declined by 3.3% m/m in August 2024 (July: 3.1%), in line with preliminary data. The slow growth was attributable to the lower output of motor vehicles (August: -10.7% vs. July: 1.9%), electrical machinery, and information and communication electronics equipment (August: -6.2% vs. July: 7.5%) and production machinery (August: -4.6% vs. July: 7.0%). On an annual basis, the indicator contracted by 4.9% in August, reversing a 2.9% gain in the previous month, pointing to the sixth time of decline during the year.

Fixed Income

Global Bonds: US Treasuries managed to hold steady as we think players are reluctant to re-test August 10Y yield highs while the Fed outlook remains for a series of interest rate cuts well into next year. In any case, bad data sustained the UST pickup, where the Empire manufacturing index fell to a -11.9 reading for October from 11.5 in September and below the 3.6 Bloomberg consensus expectations.

MYR Government Bonds: Government bonds received modest support on suspected bargain-hunting interest yesterday. However, flows were limited as we think there was some caution ahead of the Malaysian budget tabling at the end of the week. There's a risk that interest may continue to lag the rest of the week, in our opinion.

MYR Corporate Bonds: Flows continued to be light in yesterday's corporate bond market alongside the lacklustre govvies market activity. We noted interest yesterday in select higher-grade AAA and banking papers. Notable trades involved AAA CIMB Islamic IMTN 03/34, which rose 3 bps to 4.03%, and AA2 Imtiaz 10/29, which was unchanged at 3.85%.

Forex

US: On Tuesday, the dollar saw a slight appreciation against most major currencies, resuming its recent bullish run. This movement pushed the dollar to its highest level in over two months, driven by growing expectations that the Federal Reserve will implement modest interest rate cuts over the next year and a half.

Europe: The euro fell to its lowest level since August 8, ahead of the ECB policy meeting on Thursday. The central bank is poised to implement consecutive rate cuts, especially as recent regional economic data has disappointed. The pound edged slightly higher, following the UK labour market data that showed wage growth slowed to its lowest rate over two years during the three months leading up to August. This may provide the BoE room to lower interest rates next month. Meanwhile, the UK unemployment rate unexpectedly declined.

Asia Pacific: The rise in the USD has pushed the yen back towards 150, as mixed signals from policymakers continue to cloud the markets regarding the BoJ's rate outlook. Although new Prime Minister Shigeru Ishiba initially voiced surprising opposition to further rate hikes right after taking office, he clarified that he would not intervene in the BoJ's rate policy just a few days ago. In the meantime, the CNY slipped past 7.10 per dollar, its lowest in over a month, as the markets are adjusting the Fed's rate expectation and the recent disappointing trade figures from China, with both exports and imports missing forecasts. Market sentiment was further weighed down by the lack of details on the fiscal stimulus update from China's Finance Ministry over the weekend.

Malaysia: The ringgit weakened on Tuesday, alongside other Asian currencies, with the baht and peso leading the decline as the USD strengthened. The current sideways trend in the ringgit indicates that market participants are awaiting key events (as we have the US retail sales data released this week and Malaysia's Budget 2025) for a potential breakout from the range.

Other Markets

Gold: Gold rose as the outlook for global rate cuts persisted, supporting the non-yielding precious metal.

Oil: Oil fell further, by about 4% on Tuesday, to follow the 2% fall on Monday. In addition to concerns over China's weakening economy, news there's little sign of an attack on Iran's oil production facilities. The IEA has lowered its 2024 demand outlook, at 862k bpd over the 2023 number but lower than the IEA September estimate of 903k bpd.

Source: AmInvest Research - 16 Oct 2024