Snapshot Summary

Global FX: The dollar rallied as the Fed signals less rate cuts in coming year

Global Rates: UST yields surged post FOMC decision and release of latest dot plots

MYR Bonds: The ringgit government bond market remained muted ahead of the year-end

USD/MYR: Now that Fed sounded 'hawkish' and with the DXY surging, USD/MYR could be pressured higher today

Macro News

US: The Fed announced another 25bps cut to the federal funds rate in December 2024, marking the third consecutive reduction this year and bringing borrowing costs to the 4.25%-4.5% range, in line with market expectations. Meanwhile, the so-called dot plot indicates that policymakers are now anticipating just two rate cuts in 2025, totalling 50 bps, compared to the full percentage point of reductions projected in the previous quarter. The projections overall suggest Fed officials expect the US economy next year to be buoyant, with no recession in sight.

Malaysia: The country's export surged to 4.1% y/y in November (October: 1.6%), easily beating expectations of 0.5%, driven by stronger demand as the year-end approaches. Additionally, the exports were supported by robust growth in key sectors notably manufactured and agriculture goods, particularly electrical and electronic (E&E) products (November: 12.2% vs. October: 7.8%), palm oil and palm oil-based agriculture products (November: 19.9% vs. October: 11.9%) as well as machinery, equipment and parts (November: 23.5% vs. October: 9.8%). On the other hand, imports to Malaysia grew 1.6% y/y (October: 2.7%), marking the softest pace since November last year despite recording 13 straight months of growth as shaky domestic demand persisted.

Japan: Exports rose faster than expected in November at 3.8% (consensus: 2.8%) from a 3.1% growth in the previous month, marking the strongest growth since August. The latest performance was supported by a weaker yen and solid global demand.

Eurozone: The final Eurozone inflation CPI was revised downward to 2.2% y/y in November from 2.3% y/y and is slightly lower than consensus of +2.3% y/y. Core inflation was stable at 2.7% in November. The data raises expectations of more rate cuts by the ECB, after last week's cut.

Fixed Income

Global Bonds: US Treasury yields surged overnight as the Fed cut rates but signalled two cuts in 2025 in its dot plot projections. Fed chair Jerome Powell said the latest cut as a 'closer call' while indicating the central bank may proceed cautiously in view of inflation direction. The Fed statement also indicated the unemployment is low and inflation is 'somewhat elevated'.

MYR Government Bonds: The ringgit government bond market remained muted ahead of the year-end. Yesterday's trading was additionally cautious ahead of the FOMC meeting after-hours. On local drivers, we have on Friday the release of the November CPI where consensus expectation is a higher +2.1% y/y pace vs October's +1.9%.

MYR Corporate Bonds: More sideways trading was recorded in the ringgit corporate bond market yesterday. However, various names appeared on the traded list as investors rebalanced their holdings ahead of the end year. Leading the flows was AA- MMC Corp 11/25 which fell 1 bps to 3.73% and AA1 rated Batu Kawan 02/29 which rose 17 bps to 3.92%.

Forex

US: The dollar surged to a two-year high after the Fed cut rates by 25 bps but signalled less cuts in 2025. While acknowledging that policy is now closer to neutral, Fed Chair Powell stressed the Fed remains "meaningfully restrictive" and will proceed cautiously with any further cuts, citing stronger-than-expected growth, persistent inflation pressures, and cooling yet solid labour markets.

Europe: The euro fell to a three-week low against the stronger dollar. On the data front, the final Eurozone inflation figure was revised downward to 2.2% y/y from 2.3% y/y. Interestingly, ECB policymaker Pierre Wunsch suggested that a weaker euro, potentially falling to parity with the dollar, could offset the impact of US tariffs on Eurozone growth but would drive up inflation, while indicating openness to adjust rate cuts next year based on inflation and growth data. At the same time, the sterling slipped to a three-week low with markets expecting the BoE to hold its key interest rate steady at 4.75% during policy meeting later today.

Asia Pacific: Markets are expecting the BoJ today to keep its policy rate unchanged after it was hiked last July, which caused a stir in the market. The yen weakened 0.9% on Wednesday. The onshore yuan closed at steady at 7.286, following news that Chinese leaders plan to raise the budget deficit to a record 4% of GDP in 2024 while maintaining a 5% growth target - aiming for a proactive fiscal policy to counter potential US tariffs. The AUD/USD pair dropped to its lowest since October 2022.

Malaysia: The ringgit closed Wednesday weaker again for its eighth consecutive session, ahead of the Fed meeting after market hours. Now that Fed sounded 'hawkish' and with the DXY surging, USD/MYR could be pressured higher today.

Other Markets

Gold: The precious metal price fell to a four-week low at USD2,585/oz following Fed's decision, which prompted higher yields and stronger dollar.

Oil: Both Brent and WTI were supported, after recent weakness. Despite short-term risk from the surging USD, crude prices were supported overnight on some expectations of better demand from China seeing anticipated fiscal stimulus by authorities.

Source: AmInvest Research - 19 Dec 2024