Snapshot Summary

Global FX: The Dollar strengthened to an 11-week high

Global Rates: UST yields fell on the back of global oil prices and import prices data

MYR Bonds: Local govvies posted gains due to bargain-hunting interest

USD/MYR: Ringgit posted gains to close below the 4.30 level

Macro News

UK: The UK's annual inflation rate dropped to 1.7% in September 2024, the lowest level since April 2021, down from 2.2% in the previous two months and below the forecast of 1.9%. The most significant decrease was attributed to transport costs, which fell by 2.2% y/y compared to a 1.3% increase, particularly due to lower airfares and motor fuel prices. Additionally, annual services inflation slowed to 4.9%, the lowest since May 2022, down from 5.6% in the previous month. Conversely, food and non-alcoholic beverages provided the largest upward pressure, rising by 1.9% y/y compared to a 1.3% increase previously.

US: US import prices decreased by 0.4% m/m from the previous month in September 2024, following a revised drop of 0.2% in August. This marked the largest decline since the beginning of the year and was in line with market expectations. The decrease was primarily driven by a 7.0% m/m fall in fuel import costs and a 7.1% m/m reduction in petroleum import prices. Meanwhile, export prices in the US also dropped by 0.7% m/m in September, surpassing market expectations of a 0.4% decline and following a revised decrease of 0.9% in August.

Fixed Income

Global Bonds: US Treasury yields fell on Wednesday. Even as markets have reduced expectations of large rate cuts, expectations that the Fed is on the path of a rates reduction cycle in the next few quarters remain. Falling global oil prices also influenced bond players. Meanwhile, yields also fell on the back of the US Labor Department, showing import prices fell 0.4% in September, or the largest decline since December 2023, after a revised -0.2% in August.

MYR Government Bonds: Malaysian govvies posted gains yesterday, and we think this was primarily due to bargain hunting interest, seeing the recent market weakness and helped by MYR gains, which fell to below 4.300. We also think interest was aided by more robust UST performance yesterday, which saw yields come down from the 4.10% level.

MYR Corporate Bonds: Corporate bond trading was weaker yesterday despite the better-performing govvies market. PDS interest may instead follow suit after some lag usually, and we may see better interest today, assuming there are still gains in MGS trading. AA1 led the flows yesterday, rated YTL Power 10/39 at 4.24% (unch) on MYR34 million volume and Air Selangor 08/44 at 4.14% (+1 bps) on MYR30 million volume.

Forex

US: On Wednesday, the USD strengthened, reaching an 11-week high, as traders dismissed the possibility of a significant interest rate cut by the Fed at its upcoming policy meeting. Additionally, the market's focus has shifted to the US elections a few weeks away and mulls a potential Trump win. Trump's plan to implement tax cuts, looser financial regulations, and higher tariffs are viewed as expansionary policies and would be positive for the dollar.

Europe: Both the EUR and GBP closed in the red. The euro reached its weakest point since early August in anticipation of the ECB meeting on Thursday. However, if the expected 25 bps rate cut is implemented and President Christine Lagarde remains vague about future rate directions, the market reaction could be minimal. All focus was on the pound, following data showing that annual consumer price inflation fell below market expectations to its lowest point in April 2021. This strengthened the likelihood of a BoE interest rate cut next month and the chances of another cut in December. A few weeks ago, BoE Governor Andrew Bailey said the central bank could become "aggressive" in cutting interest rates if inflation continues to cool.

Asia Pacific: The Japanese yen weakened against the USD after markets received further indications of a gradual rate hike. BoJ board member Seiji Adachi emphasised that the central bank should raise rates at a "very moderate" pace and avoid acting too soon due to uncertainties surrounding the global economic outlook and domestic wage growth. In China, China's yuan held steady against the dollar on Wednesday after initially dropping to its lowest level in a month during early trading. Expectations of new stimulus measures supported the currency, while concerns shifted to the potential tariff risks that could arise if Trump wins the US presidential election next month. The Bank of Thailand pulled a 25bps surprise cut yesterday amid growth concerns, contrasting the Bangko Sentral ng Pilipinas (BSP), which the market expected to see the same cut on Wednesday.

Malaysia: Ringgit posted gains to close below the 4.30 level despite the stronger dollar. There are possibilities that the ringgit could weaken again today as the market's focus has turned towards the key event risk - the US Presidential elections.

Other Markets

Gold: Gold hovered near a record high, bolstered by expectations of continued interest rate declines and falling Treasury yields.

Oil: Crude oil ended the session with losses. This decline was driven by easing geopolitical tensions, following reports that Israel assured the US would not target Iran's oil industry and growing concerns over weakening demand from China.

Source: AmInvest Research - 17 Oct 2024