Snapshot Summary

Global FX: The dollar pared early losses as markets anticipate a December Fed rate cut followed by a slower pace of reductions in 2025

Global Rates: UST yields rose further ahead of anticipated 'hawkish' rate cut by the Fed

MYR Bonds: The onshore bond market remain lagging seeing the run up in UST yields

USD/MYR: MYR fell in tandem with regional currencies

Macro News

UK: The UK reported monthly GDP growth at -0.1% m/m in October 2024, which is a contraction versus expectation of an expansion, of +0.1%. The contraction is for a second straight month, and now places risk that the 4Q2024 GDP will show a contraction. Worse is that the inflationary risk is rising due to the Labor government's expansionary budget targets.

The UK's industrial production measure showed a contraction of 0.6% m/m in October versus expectation of an expansion of 0.3% and a worse rate than prior month's -0.5%. The Bank of England meets to decide on the policy rate this week but expectation is for the BoE Bank Rate to be held unchanged at 4.75%, after the 25 bps cut last month.

Fixed Income

Global Bonds: US Treasury yields rose further. Even though markets are expecting the Fed to cut its policy rate by 25 bps at this week's policy meeting, markets also suspect that Fed policymakers may also warn against a fast pace of continued rate cuts going forward in view of inflationary pressures. Fed policymakers are due to update their economic projections and dot plot interest-rate outlook alongside their rates decision this week.

MYR Government Bonds: Ringgit government bonds closed sideways. Weak ringgit and higher overnight UST yields on the back of higher-than-expected US PPI data ensured there was a lack of bidding interest in the local market. We think sentiment was cautious ahead of this week's FOMC decision. We still await the release of the 2025 MGS ang GII auction calendar. Our view remains for a slightly lower supply next year, of MYR165 billion gross issuance vs MYR175 billion in 2024 and continued heavier offerings in 5Y-10Y MGS+GII and 20Y-30Y GII.

MYR Corporate Bonds: Firm bids were also lacking in the ringgit corporate bond market. Overall, traded yield levels were higher and we noted these were led by selected AAA and AA1 names. Notable trades include AAA rated Danum 08/34 and 02/35 each dealt up 1 bps higher to close at similar 4.02% level.

Forex

US: The dollar pared its early losses on Friday, with the dollar index closed at around 107.00 as cooling job and inflation data reinforced expectations of a December Fed rate cut followed by a slower pace of reductions in 2025. We noted there were some dollar buying against GBP and JPY.

Europe: Against firmer dollar, the euro managed to post modest gains, rising 0.3% to 1.050. The EUR/USD pair consolidated following ECB's policy decision on Thursday. Meanwhile, the GBP lost 0.4% to its weakest level this month, after data showed the UK economy unexpectedly shrank by 0.1% m/m in October, signalling a sustained decline in growth.

Asia Pacific: USD/JPY rallied to its highest since late November, as traders assigned only a 23% chance of a BoJ rate hike at the 19 December meeting, expecting officials to await clearer signs of wage growth and US policy developments. The yuan softened against the dollar as markets showed little enthusiasm for policy signals from China's Central Economic Work Conference, with the lack of aggressive stimulus measures keeping sentiment subdued, and record lows in Chinese bond yields and speculation of gradual yuan depreciation added to the bearish tone for the currency.

Malaysia: Most Asian currencies were on the downside amidst the dollar strength, including MYR which fell to an intraday low of 4.457 before recovering some losses.

Other Markets

Gold: Gold retreated for a second day, as profit-taking and mixed rate outlook offset support from a weaker dollar, rising physical demand, and renewed gold purchases by China's central bank.

Oil: Crude oil closed higher, rebounding from prior losses, as rising supply concerns for 2025 were balanced by geopolitical risks, including new sanctions on Russian exports, the ongoing Middle East tensions, and uncertainties to demand on the back of potential Trump disruption to global trade.

Source: AmInvest Research - 16 Dec 2024