AmInvest Research Reports

Fixed Income & FX Research - 21 September 2023

Publish date: Thu, 21 Sep 2023, 10:45 AM
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Snapshot Summary…

Global FX: The Fed signalled there might be another rate hike this year, and the DXY index rose accordingly

Global Rates: UST yields rose further as the FOMC held rates, but forecast there will be only 50 bps cuts in 2024

MYR Bonds: MGS Yields Climbed Further Ahead of Key Risk Events and the 30Y MGS Auction

USD/MYR: During the Asian session yesterday, the ringgit was traded on stronger footing against the weaker dollar

Macro News

United States: In its September 2023 meeting, the Federal Open Market Committee (FOMC) decided to keep the federal funds rate (FFR) target in a range of 5.25% - 5.50%, which is a 22-year high. This decision was in line with market expectations. The Fed also indicated that there might be one more rate hike this year if incoming data suggests a need for higher rates. According to the latest dot-plot projections, policymakers anticipate one more rate increase in 2023 and two rate cuts in 2024.

United Kingdom: Consumer price inflation in the UK decreased to 6.7% in August 2023, down from 6.8% in the previous month, and this is the lowest inflation rate since February 2022. The drop is mainly attributed to slower price increases in food and accommodation services. Core inflation, which excludes volatile items like energy and food, also fell to 6.2%, the lowest since March 2023. Prices rose more slowly in categories such as food, furniture, recreation, restaurants, and miscellaneous goods. However, transport prices saw a mild increase due to higher global oil prices. On a monthly basis, consumer prices went up by 0.3% in August.

Fixed Income

Global bonds: As widely expected, the US Fed policymakers decided to keep the FFR unchanged but retained the possibility for another hike before year end. At the same time, through its updated macro projections and forecasts, the Fed expects to bring down inflation without a soft landing. The interest rate forecast also shows that there will be only 50 bps rate cut in 2024, compared to 100 bps in its previous projections, supporting the case for “higher-for-longer” rates. Accordingly, the UST 2Y yield was sent higher by 9 bps to 5.18% while 10Y yield rose 5 bps to 4.41%. Meanwhile, Gilt market saw bullish performance after UK’s inflation unexpectedly grew slower by 6.7% y/y in August, compared to forecast 7.0% y/y and July’s 6.8% y/y. Core inflation also expanded slower at 6.2% y/y (cons.: 6.8% y/y, July: 6.9% y/y). The 10Y UK gilt rallied by 13 bps, ending at 4.22%.

MYR Government Bonds: Local bond yields climbed further ahead of key risk events this week. The belly part of the govvies curve took the heaviest hit, rising 5 – 7 bps while long ends were quoted higher ahead of today’s 30Y MGS auction with very little trades done. The 30Y MGS auction (MGS 03/53) comes at MYR3.5 billion but there will also be another MYR1.5 billion private placement. Thus, total MYR5.0 billion is larger than our expectation of MYR4.0 billion. However, current outstanding in MGS 03/53 is just MYR7.4 billion whereas outstanding in MGS 06/50 is MYR27.8 billion.

MYR Corporate Bonds: Volume traded in the PDS market dropped to RM279 million from RM1.2 billion in the prior session as investors took to the sidelines ahead of the US Fed meeting last night. Losers were seen outpacing gainers. Among notable trades were RM40 million on 01/26 AAA PLUS done at 3.87%, RM30 million on 08/38 YTL Power AA1 done at 4.46%, and RM25 million on 03/33 Point Zone AA- done at 4.31%.


US: The US dollar recovered early weakness and moved much stronger after the FOMC's dot plot projections showed policymakers still see one more rate hike this year. The Fed also raised the median FFR target for 2024 and 2025 by 50 bps. Out pf 19 policymakers, 12 are expecting one more 25 bps rate hike this year. The DXY index rose 0.2% to 105.33 after falling below 105 intraday.

Europe: As the Fed held rates but signalled a hawkish stance, the euro was holding near the 1.07 level at the overnight market close, despite briefly falling below that level intraday. Data released Wednesday showed that Germany’s PPI at its largest y/y decline on record at -12.6%. The GBP was lower vs USD after the release of soft UK CPI data (+6.7% y/y in August vs 6.8% in July) before this week’s BoE policy meeting. EUR/USD fell 0.2% to 1.066 while GBP/USD fell 0.4% to 0.645.

Asia-Pacific: As PBoC set the yuan fixing at a firm 7.1733, the strongest level in five weeks, and set its benchmark lending rates unchanged, the CNY ended steady yesterday at 7.286. China's central bank left its 1-year and 5-year loan prime rates unchanged at 3.45% and 4.2%, respectively. The AUD was little changed, seeing the steady CNY and continued crude oil price strength. JPY moved on weaker footing ahead of BoJ’s policy meeting later this week.

MYR: The ringgit was traded on a stronger footing against the weaker dollar yesterday ahead of expectations that the Fed would hold interest rates. USD/MYR was spotted at 4.686 at the market close yesterday, down 0.2%.

Other Markets

Gold: Gold closed modestly weaker as it failed to hold early gains. Gold was spotted at USD1,930, or down 0.1%.

Crude Oil: Crude oil retreated from early strength post the hawkish FOMC signalling. Brent was at USD93.53 per barrel at the close, or down 0.9%.

FBM KLCI: Malaysia’s stock market closed for its third day of losses on Wednesday, amid the global risk aversion ahead of FOMC yesterday. The FBM KLCI closed 0.4% lower at 1,452. Nevertheless, foreign investors were net buyers of MYR116.4 million Malaysian shares yesterday.

US Equities: US equities ended weaker with tech stocks traded down as the Fed remained hawkish. The Dow Jones index fell 0.2%, or about 77 points. Meanwhile, the S&P500 Index fell 0.9% to close at 4,402 and the Nasdaq fell a larger 1.5% to close at 13,469.

Source: AmInvest Research - 21 Sept 2023

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