Snapshot Summary

Global FX: The reading of a lower m/m increase in US core CPI knocked the dollar down

Global Rates: UST yields fell post US CPI release

MYR Bonds: Local govvies were supported after UST yields found a ceiling, while players also reacted to Bank Indonesia's surprise rate cut yesterday

USD/MYR: Ringgit took advantage of softer dollar and better EM risk appetite

Macro News

Indonesia: Indonesia's central bank unexpectedly reduced its policy rates by 25 bps, resuming its monetary easing efforts to bolster growth despite financial market volatility that has significantly weakened the rupiah.

US: The annual inflation rate in the US rose for the third consecutive month to 2.9% in December 2024, up from 2.7% in November, aligning with market expectations. This year-end increase was partly driven by lower base effects from the previous year, especially in the energy sector. On a monthly basis, the Consumer Price Index (CPI) increased by 0.4% m/m, the highest since March, but in line with a Bloomberg survey. Core CPI came in +0.2% m/m, which is lower than the consensus expectation of +0.3% m/m, aiding the UST market and pressuring USD downward during overnight trading.

UK: The annual inflation rate unexpectedly fell to 2.5% in December 2024 from 2.6% in the previous month, below the predicted 2.6%, but it aligned with the Bank of England's early November forecast. The annual core inflation rate dropped to 3.2% from 3.5%.

Malaysia: Politico reported that the EU-Malaysia suspended the free-trade agreement and will see a resumption of negotiations when PM Anwar visits Brussels on 20 January. Talks on the trade agreement had stopped in 2012. Keen eyes could look at talks on deforestation negotiations affecting Malaysia's palm oil exports.

Fixed Income

Global Bonds: The UST market ended stronger, with yields dipping 14 bps on the 10Y paper. The bond sentiment was aided by release of lower-than-expected US core CPI reading for December and continued suspected short-covering.

MYR Government Bonds: The Malaysian government bond and IRS markets were well supported. A firm 15Y GII auction earlier in the week continued to aid sentiment. Still, steadier UST yields the night before and the market's reaction to the surprise Bank Indonesia rate cut also aided the onshore market.

MYR Corporate Bonds: The mixed onshore corporate bond market continued yesterday, and we noted select names where their yields continued to realign. Yesterday's notable trades include AAA-rated Air Selangor 10/36, which fell 1 bps to close at 4.03%, and Air Selangor 04/38, which rose 9 bps to close at 4.07%. Along the

GG curve, long-dated Danainfra 03/44 fell 1 bps to close at 4.09% on MYR65 million volume.

Forex

US: The CPI stats knocked the greenback, as traders again mull whether the Fed may cut rates twice this year - pushing the DXY down from Monday's 26-month high. Softer core readings and weaker producer prices confirmed that inflation isn't heating up, leaving the index behind against major peers. But what supported the greenback was improved reading in Fed's Beige Book, suggesting that the US economy increased "slightly or moderately' in late November and December. Fed officials (NY Fed Williams and Richmond Fed Barkin) reiterated their cautious tone amidst an uncertain economic outlook.

Europe: A cooler-than-expected drop in UK inflation buoyed the pound and soothed market jitters, prompting a bigger bet on BoE rate cuts this year. Sterling inched up to USD against the dollar. EUR/USD tumbled after Vice President Guindos hinted that the ECB would continue slashing rates as the eurozone's growth sputters, reinforcing the market's expectations for more aggressive monetary easing ahead.

Asia Pacific: The yen shot higher as Governor Ueda reiterated that the BoJ could tighten policy if the economy and inflation keep humming, echoing earlier remarks from Deputy Governor Himino. Traders are now pricing a potential rate hike at next week's policy meeting, giving the yen an extra boost versus the greenback. The onshore yuan nudged but still struggles under the bearish sentiment, prompting Beijing to loosen offshore borrowing restrictions and pledge to keep the currency on an even keel. These latest measures and the PBoC's stern warnings on disruptive market behaviour aim to counter a trifecta of yuan headwinds - rising dollar strength, low Chinese yields, and simmering trade tensions. Most recently, the PBOC injected a hefty CNY958.4 billion via 7D reverse repos to ease a looming holiday cash crunch and cover maturing medium-term loans. Despite worries that defending the yuan would cap the bank's liquidity support, this move signals policymakers are still willing to keep the liquidity flowing during the Lunar New Year. Regionally, Indonesia's rupiah sank to a six-month low, while local equities climbed nearly 2% after BI unexpectedly trimmed its benchmark rate to 5.75% to bolster economic momentum.

Malaysia: The ringgit rallied for another session, buoyed by a renewed appetite for emerging-market currencies. Following softer US inflation news, USD/MYR slipped 0.2% to close at 4.499, staying buoyed in its consolidation range.

Other Markets

Gold: Gold surged to its highest point since mid-December as a weaker-than-expected core CPI print pressured the greenback and Treasury yields, fuelling bets on another Fed rate cut.

Oil: Oil prices climbed, with Brent rallying 2.6% as tighter US stockpiles and fresh sanctions on Russian supply stoked supply jitters, though a Gaza ceasefire capped the gains.

Source: AmInvest Research - 16 Jan 2025