Snapshot Summary

Global FX: The USD was buoyed by positive data, but the EUR fell following the ECB decision.

Global Rates: US Treasuries saw yields moving slightly higher overnight, alongside the yields on certain Bund tenors.

MYR Bonds: The government bond market was in cautious mode yesterday, ahead of the Malaysian budget tabling.

USD/MYR: Ringgit weakened and partly erased prior gains to close at circa 4.30-level.

Macro News

Australia: Australia's seasonally adjusted unemployment rate remained at 4.1% in September 2024, unchanged for the second consecutive month but slightly below market predictions of 4.2%.

Eurozone: The ECB reduced its three main interest rates by 25 bps in October 2024, as anticipated, following similar cuts in September and June. The new rates for the deposit facility, main refinancing operations, and marginal lending facility are now 3.25%, 3.40%, and 3.65%, respectively. This decision is based on a revised evaluation of inflation, which indicates that disinflation is progressing well. For the first time in over three years, inflation in the Eurozone dipped below the ECB's 2% target in September. While wage growth remains robust, inflationary pressures are beginning to ease.

United States: US retail sales rose by 0.4% m/m in September 2024, significantly higher than the 0.1% increase in August and surpassing market expectations of a 0.3% gain. Miscellaneous store retailers experienced the largest boost, with a 4.0% m/m rise, followed by clothing stores (1.5% m/m), health and personal care retailers (1.1% m/m) and food and beverage stores (1.0% m/m).

US initial jobless claims fell by 19k during the week of 12th October 2024, representing the largest decline three months after reaching a 14-month high the week before.

Fixed Income

Global Bonds: US Treasuries saw yields moving slightly higher overnight. Players were heard reacting to firm economic data comprising a rise in retail sales and weekly initial jobless claims down by 19k in the week ended 12 October. Elsewhere, Bund yields also rose slightly significantly in the middle to the end part of the tenors, as the ECB cut rates as expected. Still, policymakers hesitated to commit clearly to more cuts, though they did point to the ongoing sluggish Eurozone economy.

MYR Government Bonds: The government bond market was cautious yesterday, ahead of the Malaysian budget tabling on Friday. Sentiment was also cautious amid a sluggish UST market during the Asian session yesterday, with yields not improving lower below the 4.00% level. Meanwhile, the reopening of MGS 5/44 was announced yesterday with MYR3.0 billion auction size plus MYR2.0 billion private placement. Total issuance is on the high end of expectations, and the bond was priced at about +2 bps cheaper in Wl trading.

MYR Corporate Bonds: Continued sluggish activity was seen for ringgit corporate bonds yesterday. This went alongside cautious government market trading. AA led flows- rated DRB-Hicom papers, which included the 12/29 tranche unchanged at 4.05%, and the 08/30 tranche traded 2 bps higher to close at 4.10%.

Forex

US: The USD posted a notable rise, buoyed by robust consumer spending and positive labour data from the US. These encouraging economic indicators prompted traders to reconsider their expectations for interest-rate cuts from the Fed. The USD also went up against the euro following the ECB's decision on Thursday and some flare-up in the Middle East conflict.

Europe: The euro dropped as the ECB flagged growth risks and cut interest rates for the third time this year, bringing the key deposit rate to 3.25%. The EUR/USD hit a session low of 1.0811. Traders now expect a half-point rate cut in December. President Christine Lagarde noted that lower confidence might slow the recovery in consumption and investment. On the other hand, the British pound rose 0.2% as the growth conditions in the UK seemed more promising compared to its Eurozone peers.

Asia Pacific: The yen fell below the key 150 per dollar level after strong US economic data reduced expectations for Fed rate cuts, strengthening the dollar. At the same time, BoJ officials signalled their hesitation in raising interest rates. The yen dropped 0.4% to close Thursday at 150.21 per dollar, its weakest level since the end of July. On Thursday, China's offshore yuan remained stable as investors assessed new measures from a key property briefing. Officials pledged to almost double the loan quota for unfinished residential projects to 4 trillion yuan ($562 billion), but this fell short of market expectations. The AUD/USD rose 0.4% to 0.667 as Australia's unemployment rate remained steady, leading traders to delay expectations of RBA rate cuts next year.

Malaysia: Ringgit weakened on Thursday, partly erased its prior session's gains, and closed at 4.309. Focus today will be on the tabling of Budget 2025, where we expect the government to maintain the fiscal deficit to around 3.5-3.0% in 2025 as outlined in the 12MP Mid-Term Review. We anticipate that the key focus areas for Budget 2025 should include policy certainty (rather than clarity), SME development, safe asset returns, the real estate sector, and the impact on the MGS and GII markets under the pretext of continuous efforts in fiscal consolidation.

Other Markets

Gold: Gold reached a new record high of USD2,696 amid ongoing Middle East tensions and US data that sustained expectations for Fed rate cuts.

Oil: Oil prices increased after four days of bearish run as traders balanced falling US crude stockpiles and potential Middle East production risks. Brent settled at around USD74 per barrel, while WTI closed at around USD71 per barrel.

Source: AmInvest Research - 18 Oct 2024