MALAYSIA: Country Wrap: Budget 2026 About to be Tabled
Market Summary: The FTSE Malay KLCI continues to underperform relative to regional peers. Up +0.42% today, it is higher by just +0.71% for the week. The Malaysian Ringgit has delivered decent gains over the last week, and is up strongly again today by +0.29% to 4.2087 and +0.49% for the week as it approaches levels where it has bounced off 3-times in the last month, failing to hold beneath 4.2050. The MGS 10-YR finally gave back the gains from the rallying leading into the BNM, to finished +4bps higher for the week at 3.40%
- BUDGET 2026, which will be tabled on Oct 10, marks the first budget to support the goals of the 13th Malaysia Plan (13MP) and built on expectations that it will seek to sustain domestic demand . (source The Star)
- While upbeat over the year-on-year (y-o-y) improvement in Malaysia’s industrial production for July following the release of the month’s industrial production index (IPI) report yesterday, economists continue to advocate caution with regards to the general sentiment of the economy. (source The Star)
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JGBS: Cheaper After Poor 5Y Auction
JGB futures are weaker and at session lows, -26 compared to settlement levels, after today’s disappointing 5-year auction.
- Today’s 5-year JGB auction showed poor signals on demand. The low price came in line with expectations at 99.72, and the bid-to-cover ratio declined to 2.9616x from 3.5411x. Meanwhile the tail widened slightly to 0.03 from 0.02. The result aligns with the poor demand signals seen at this month’s 10-year auction. With yields higher and the 2s/5s curve steeper than last month, today’s outcome represents a deterioration in overall demand conditions.
- "JAPAN'S AKAZAWA: NOT BAD IF TRUMP EXEC ORDER COMES BY MID SEPT, US CAN'T GET INVESTMENT HELP IF PROMISES NOT KEPT. JAPAN COULD INCREASE ACTUAL US INVESTMENT PERCENTAGE, 1-2%, INVESTMENT FOLLOWS PAST CASES, COULD BE HIGHER" - BBG
- Cash US tsys are slightly mixed, with a flattening bias, in today's Asia-Pac session after yesterday's twist-steepener.
- Cash JGBs are showing a twist-flattening, with benchmark yields 3bps higher to 2bps lower. The benchmark 5-year yield is 2.6bps higher at 1.069% versus the cycle high of 1.19%.
- Swaps rates flat to 1bp higher, with swap spreads tighter out to the 20-year.
- Tomorrow, the local calendar will be empty ahead of Q2 GDP on Friday.
AUSTRALIA: VIEW: Westpac Sees No Risk To Rate Outlook From Wages
Australia’s Q2 WPI rose 0.8% q/q and 3.4% y/y after 0.9% & 3.4% in Q1, close to expectations. As a result, Westpac notes that wages growth is “tracking much as we, and the RBA, have been expecting”. Since the WPI is fairly stable and “unlikely to surprise”, then it “presents no risk to the medium-term outlook for inflation and thus interest rates”. Westpac is expecting another 25bp rate cut in November after this month’s easing.
- Public wages grew faster than the private sector at 1.0% q/q & 3.7% y/y compared with 0.8% q/q & 3.4% y/y. Westpac states that “the ABS noted that this quarter’s lift in the public sector reflected backdated pay rises from recently approved state-based enterprise agreements coming into effect, coupled with regular scheduled pay increases”.
- “As you would expect with moderating aggregate wage inflation, the share of jobs that recorded an annualised wage change greater than 4% over the past twelve months has decreased each successive quarter since June quarter 2024.”
- “The June quarter is traditionally a very quiet time for an increase in award wages which gained just 0.1% holding the annual pace flat at 3.3%yr. We expect to see a much larger increase in the September quarter with the annual lift to the minimum wage/awards. This year the increase granted was 3.5% compared to 3.75% in 2024.”
- “In the June quarter, both individual arrangement and enterprise bargaining wages gained 0.6%. For individual arrangements, this was a step down from 0.7% in June 2024 while enterprise bargaining matched the June 2024 print of 0.6%. So overall, enterprise bargaining wages held the annual pace at 3.6%yr while individual arrangements maintained a below average pace of 3.2%yr.”
AUSSIE BONDS: Bull-Flattener Ahead Of Employment Data Tomorrow
ACGBs (YM +1.5 & XM flat) are slightly stronger after today’s wages data.
- Cash US tsys are slightly mixed, with a flattening bias, in today’s Asia-Pac session after yesterday’s twist-steepener.
- With May and June employment gains disappointing, tomorrow’s July data will be monitored closely for signs that the labour market has turned. Q2 employment averaged 28.8k/month up from Q1’s 1.4k but slightly lower than Q2 2024’s 32.2k. Bloomberg consensus expects a 25k gain in July after June’s +2k, slightly below the Q2 average. The unemployment rate is forecast to decline 0.1pp to 4.2%, returning to the Q2 average.
- In its updated staff projections on Tuesday, the RBA continued to expect the Q4 2025 unemployment rate to be 4.3% and then stay there. Employment growth was revised up to 1.6% from 1.4% in Q4 2025 and it then slows to 1.4% and remains there over the rest of the forecast horizon.
- Cash ACGBs are flat to 2bps richer with a steeper 3/10 curve and the AU-US 10-year yield differential at -5bps.
- The bills strip is flat to +2.
- RBA-dated OIS pricing is slightly softer across meetings today. A 25bp rate cut in September is given a 42% probability, with a cumulative 40bps of easing priced by year-end.
- The AOFM plans to sell A$1000mn of the 2.75% 2 1 November 2029 bond on Friday.
