Snapshot Summary

Global FX: The dollar extends its rise post-FOMC

Global Rates: Longer tenor UST weaken on the back of firm economic data

MYR Bonds: The ringgit government bond market remained weak

USD/MYR: The ringgit fell further against the rallying dollar

Macro News

Japan: As expected, the Bank of Japan (BoJ) maintained its key short-term interest rate at 0.25% during its final meeting of the year, keeping it at the highest level since 2008. The decision came despite the US implementing its third rate cut this year, as the BoJ needed more time to assess certain risks, particularly US economic policies under Trump and next year's wage outlook.

US: The US economy expanded an annualized 3.1% in 3Q2024 in its final estimate, higher than 2.8% in the second estimate and above 3% in 2Q2024, marking the largest growth rate YTD. The strong growth momentum was due to upward revisions to exports and consumer spending.

UK: The Bank of England (BoE) left its benchmark bank rate at 4.75% during its December meeting, in line with market expectations, as CPI inflation, wage growth and indicators of inflation expectations had risen. Nevertheless, the BoE action revealed a dovish slant as three members of the nine-member rate-setting committee favouring to reduce it to 4.5%.

Fixed Income

Global Bonds: UST market was mixed yesterday but longer tenor papers saw a modest rise on the back of firm economic data. The data include the latest weekly jobless claims and upward revision in 3Q3024 US GDP. Overall sentiment remained weak in the US government bond market after the FOMC flagged a slower pace of easing next year.

MYR Government Bonds: Ringgit government bonds fell along most benchmarks yesterday as sentiment followed the prior day weakness in the global bond markets which in turn came on the back of the Fed signal that it may cut rates next year at lessened pace than previously anticipated.

MYR Corporate Bonds: Trading in the local corporate bond market was more sideways yesterday. Gains were modest with demand slanted towards higher had papers. Amongst the gainers include AAA rated PLUS 01/37 which shed 1 bps to close at 3.99% and AAA rated Air Selangor 10/48 which fell 2 bps to 4.23%.

Forex

US: The DXY index extended its gains after the 'hawkish' Fed cut decision and held near a two-year peak after the solid 3Q2024 GDP data. We also suspected there was USD buying against JPY and GBP following the respective central bank's policy meetings.

Europe: The pound weakened further after the BoE voted 6-3 to hold rates at 4.75%, with a larger-than-expected split as three policymakers, including Deputy Governor Ramsden, favoured an immediate rate cut. While Governor Andrew Bailey emphasized a cautious, gradual approach to rate adjustments amid economic uncertainties, markets interpreted the vote as a signal for potentially faster rate cuts next year. The euro managed to consolidate recent sharp losses and gained 0.1% on Thursday.

Asia Pacific: The BoJ kept rates unchanged as expected, but Governor Ueda's emphasis on the need to assess wage data and the incoming wage negotiations tempered expectations for a January hike and sent the yen for a sharp fall to its lowest since last July. This dovish tone pushed USD/JPY above 157, with traders now considering March as the next likely window for policy action. China's yuan slid to a 13-month low, breaching the key 7.3 level despite strong PBoC support, as persistent dollar strength and ongoing capital outflows weighed heavily on the currency. Data showed that China's capital markets saw record outflows of USD45.7 billion in November, which widened from a USD25.8 billion outflow in October, driven by weak investor confidence amid a slowing economy, and global portfolio shifts triggered by tariff threats and Trump's election win.

Malaysia: The ringgit saw its sharpest daily losses since the Republicans won the US election early November. MYR movement was in tandem with Asian currencies, with IDR and THB losing 1.2% and 0.8% respectively. We posit the Fed's less dovish signal this week will end ringgit's movement towards to 4.10-4.20 in the short-term period.

Other Markets

Gold: Gold extended its losing streak to six sessions, dropping to a five-week low as the Fed's signals boosted the dollar to a two-year high.

Oil: Crude oil also took a hit as the dollar rally makes it more expensive to buy commodities. Brent fell 0.7% while WTI declined 0.9%.

Source: AmInvest Research - 20 Dec 2024