AmInvest Research Reports

Fixed Income & FX Research - 20 September 2023

Publish date: Wed, 20 Sep 2023, 09:46 AM
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Snapshot Summary…

Global FX: The DXY index marks third consecutive days of decline amidst mixed major currencies performance

Global Rates: The UST Yields Touched 15-year Highs on Concerns of Resurging Inflationary Pressures

MYR Bonds: Volume traded in PDS market reached above RM1.0 billion while govvies space remained quiet

USD/MYR: The Ringgit Depreciated Amidst General Weakness in Regional Currencies

Macro News

Euro Area: The annual inflation rate in the Euro Area for August 2023 was revised lower to 5.2% from the initial estimate of 5.3%, the lowest since January 2022. The main contributors to inflation were services (5.5%), food, alcohol & tobacco (9.7%), and non-energy industrial goods (4.7%), while energy prices decreased but at a slower rate (-3.3%). Monthly, the CPI increased by 0.5%, slightly lower than the initial estimate of 0.6%. The ECB has raised its inflation forecasts for 2023 (5.6%) and 2024 (3.2%), mainly due to rising energy prices, and anticipates 2.1% inflation in 2025.

Malaysia: Malaysia's total trade dropped significantly by 19.8% compared to the same month last year. This decline was due to a decrease of 18.6% in exports and 21.2% drop in imports. The trade surplus increased to RM17.3 billion. Exports of agriculture products fell by 27.1% compared to last year. Mining exports, also dropped by 23.1%. Manufacturing exports, the largest contributor at 85.4%, decreased by 17.7% due to the declines in E&E products, petroleum items, and chemicals.

Fixed Income

Global bonds: The UST 2Y and 10Y yields ended the day near its highest level since 2006 and 2007 level, respectively. 10Y yield rose 6 bps to 4.36% while 2Y yield climbed 4 bps to 5.09%. This reflects concerns on resurfacing inflationary pressures as oil prices remain elevated due to tight supplies outlook. In tandem, Bund market closed weaker as yield curve shifted higher by about 2 – 4 bps. On the other hand, the Gilt curve was bullish on safe haven demand as lingering growth concerns remains following weak economic data released last week and also ahead of UK’s inflation data later today.

MYR Government Bonds: The Malaysian bond market remained quiet with little action seen and minimal fresh flows. Levels, however, trended higher on longer tenure following the announcement of 30Y MGS 03/53’s reopening auction closing Thursday, with an auction size of RM3.5 billion and another RM1.5 billion for private placement. WI was quoted 4.38% - 4.34% with nothing done.

MYR Corporate Bonds: In the PDS secondary market however, the volume traded was heavy at RM1.18 billion, attributed by GGs and AAAs trades. Among notable trades were RM200 million on Khazanah GG 09/32 done at 4.027%, RM42 million on 01/25 PLUS AAA done at 3.810%, and RM60 million on 10/27 AA- done at 4.43%.


US: The US dollar moved slightly lower as global markets were in cautious mood before key central bank decisions. A modest support to the USD was due to the continued hawkish signals in view that policymakers are keen to exert continued fight against inflation. However, the markets are largely expecting an interest rate hold by the Fed still. The DXY ended 0.1% lower to close at 105.13 overnight.

Europe: Reuters reported that the ECB is mulling draining excess liquidity from the banking system which could happen by next month. On the other hand, we think mopping up liquidity could mean less pressure for the ECB to continue unimpeded interest rate hikes. EUR/USD closed 0.1% lower overnight at 1.068. GBP/USD settled around 1.239 level overnight (was up 0.1%) as traders await BoE meeting on Thursday and UK inflation data due today.

Asia-Pacific: With global markets in a cautious mood, CNY weakened further but losses were pared yesterday. On top of global central bank decisions, the PBoC is also expected to decide on its loan prime rate near end of this week. Meanwhile, some support for CNY occurred as the PBoC sold USD2.06 billion worth of 6-month yuandenominated bills in Hong Kong at reportedly record high coupon rate of 3.38%. USDJPY was higher yesterday amid the cautious global markets. However, the recent trek higher of the pair, heading towards 148 level meant there was some technical resistance yesterday. USD/JPY ended yesterday at 147.86, up 0.2%. AUD was little changed with trading seemingly guarded after retreating from twice hitting 0.647 last week. The RBA latest policy meeting minutes show that policymakers think there is a strong case for pausing rate hikes.

MYR: With sentiment remained guarded ahead of key global central bank events, the ringgit extended its decline against the US dollar. On the data front, Malaysia’s exports contracted by 18.6% y/y (cons.: 16.3% y/y) while imports declined 21.2% y/y (cons.: 18.3% y/y) as global trades remained subdued on the effects of high interest rates. USD/MYR pair ended 0.1% higher at 4.697.

Other Markets

Gold: Gold was about 0.1% higher amid the cautious mode in global markets. Levels remain near their 4-week highs aided by sustained high global bond yields.

Crude Oil: Oil remained supported by constrained global supply outlook. However, yesterday also saw API data showing US commercial inventories of crude oil down by 5.3 million barrels last week thereby paring the oil price surge overnight. WTI ended up 0.3% to USD91 per barrel.

FBM KLCI: Malaysia’s FBM KLCI ended flat yesterday as investors remained cautious ahead of the Federal Reserve meeting. The index ended down 0.02% at 1,458. However, foreign investors were net buyers with a large MYR161.8 million flow yesterday.

US Equities: As US bond yields were hovering near 15-year highs, it pressured US stocks. The Dow Jones Industrial Average closed 0.3% lower, S&P500 down 0.2%, and Nasdaq down 0.2%.

Source: AmInvest Research - 20 Sept 2023

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