Snapshot Summary

Global FX: Shifting expectations of Fed policy drove USD firmer after a three-day decline

Global Rates: UST yields rose as wariness over monetary and fiscal policy dominate sentiment

MYR Bonds: There were better bids in the local market after recent consolidation in UST yields and as authorities cancelled a 3Y GII auction slated for next month

USD/MYR: USD/MYR pair was rangebound but is off recent three-month highs

Macro News

Japan: Japan's exports increased by 3.1% y/y to JPY 9,426.67 billion in October 2024, marking a three-month high and exceeding the market forecast of a 2.2% rise. This shift follows a 1.7% decline in the previous month. Meanwhile, imports increased by 0.4% y/, surpassing market expectations of a 0.3% decline.

UK: The UK's annual inflation rate rose to 2.3% in October, the highest in six months, up from 1.7% in September, surpassing the Bank of England's target and market expectations of 2.2%. On a monthly basis, the CPI increased by 0.6% m/m, and annual core inflation edged up to 3.3% from 3.2% in the previous month.

UK's PPI fell by 0.8% m/m in October, marking the second consecutive month of decline, following a revised 0.6% drop in September and slightly less than the expected 0.9% decrease.

Malaysia: The Financial Markets Committee (FMC) at Bank Negara Malaysia said it will continue to monitor domestic financial market conditions, seeing the ongoing global developments, which include the US political and economic conditions moving forward and China's current struggles to boost its growth prospects. The FMC said these risks have recently heightened volatility in the global and regional FX markets. The committee also noted that the conversion of export proceeds, income and excess foreign currencies has continued. It said YTD, the ringgit's one-month implied volatility is manageable at 4.5% (2023: 5.3%), where the regional average is 6.0%.

Fixed Income

Global Bonds: US Treasuries reversed early gains to close modestly weaker overnight. There was support in early trading as safe-haven bids were seen amid the geopolitical risks. However, bonds again succumbed to weakness as markets continue to expect the Fed's monetary policy easing to be at a slow pace moving forward, whilst Trump's fiscal policy is expected to be expansionary and inflationary. The primary UST segment saw weakness, and the USD21 billion 20Y auction garnered weaker demand at 2.34x BTC against 2.52x average at the past six auctions of the same tenor.

MYR Government Bonds: The onshore government bond market saw better bids yesterday. There was some push from the UST market consolidating after recent weakness amid safe-haven bids due to geopolitical concerns. News of authorities cancelling the upcoming 3Y GII auction slated for next month supported sentiment and raised speculation about whether the government is on course for better fiscal performance this year. We believe the move reflects the government's commitment to pursue deficit control, but at the expense of lower development expenditures.

MYR Corporate Bonds: Corporate bond trading was mixed-to-slightly weak yesterday. There was some aid from better bids seen in the govvies segment, though overall trading was still shaky, seeing short-term global bond sentiment remained at risk from expectations of slower Fed rate cuts. AA flows rated OSK IMTN 00/33, which fell 2 bps to 4.18% on MYR40 million volume, and A3 rated Bank Islam Perp (callable in 2029), which fell 2 bps to 4.25%.

Forex

US: The US dollar rebounded after a three-session decline, driven by shifting expectations for Fed rate cuts, now seen as less likely, with CME FedWatch pricing a 52% chance of a 25 bps cut in December, compared to more than 80% chance a week ago. Diverging views from Fed officials highlight cautious optimism about inflation easing, but concerns persist about moving too fast, with policymakers emphasising a data-dependent approach to rate adjustments. The separate views were taken from speeches by Michelle Bowman and Lisa Cook ahead of the December meeting.

Europe: The euro was down half a percentage point while the GBP erased its earlier gains and closed in the red (down 0.2%). GBP rose initially after UK inflation exceeded expectations, surpassing the BoE's 2% target and boosting expectations that the central bank will hold rates steady, with OIS pricing just an 11.2% probability of a cut next month.

Asia Pacific: The USDJPY weakened again and flared up the concerns that authorities will step into the market and support the yen. The Chinese yuan slipped 0.1% after the PBoC set the midpoint daily fixing at 7.1935 per dollar, 451 pips firmer than market estimates, another sign of efforts by the central bank to prevent the currency from free-falling.

Malaysia: The Malaysian ringgit was rangebound. Yesterday, BNM's statement signalled it is aware of currency market volatility, as lower volatility ensures orderly market functioning. BNM highlighted Malaysia's resilient financial market, the ringgit's relative outperformance, and steady foreign inflows, with the Financial Market Committee (FMC) noting ample liquidity and manageable volatility amid global uncertainties.

Other Markets

Gold: Gold rose for a third consecutive day as heightened geopolitical tensions fueled safe-haven demand despite a stronger dollar and high UST yields.

Oil: Crude oil fell as weak demand and high supply outweighed early support from geopolitical tensions, including Russia's updated nuclear policy following new reporting US approval for Ukraine to target Russian sites.

Source: AmInvest Research - 21 Nov 2024