MALAYSIA: Week Ahead: The Macro, Valuation, Sentiment & Technical Lens
Macro: The key releases for Malaysia last week was the S&P Global Malaysia PMI Manufacturing; which continued to be in modest contraction at +49.9 and the BNM decision on rates. The BNM as widely expected remained on hold at 2.75% noting a very balanced view to the outlook. For the week ahead, the flow of data is modest. Today Foreign Reserves are released with limited expectations of change from the prior month result of US122bn, which are all time highs. Wednesday sees the release of Industrial Production and and if it comes inline with market expectations of +2.1%, it will slip just below the 3-year average. Also out Wednesday July's Manufacturing Sales Value YoY which came in at 3.3% in June.
Fig1: Malaysia Foreign Reserves 2015-2025
Valuations: KLCI Index P/E's are not stretched currently, yet remain fully priced at these levels. The outlook for growth is measured and at this stage, has the potential for downside rather than upside. The Current P/E of 14.8x is forecast to decline modestly into year end to 14.58x and 2026 is forecast currently at 13.71x. The currency at 4.2292 has traded in a very tight rang since May, with today's FX reserve release likely to support the idea that there has been limited support for the Ringgit from the BNM.
Fig 2: FTSE Malaysia KLCI Index Price to Earnings
source: Bloomberg Finance LP / MNI
Sentiment: bid to cover on longer dated issuance has been fairly stable, with bid to cover's on shorter issuance much higher. This could point to the idea that some domestic bond investors were positioning for a rate cut last week and potentially could trend the other way today for the new issue. Sentiment for the equity market remains good with returns over the last month positive, though at the bottom end of the range for regional peers. For rates, with the BNM remaining on hold the mini rate rally we saw leading into it has the potential to unwind.
Technicals: the USDMYR cross is delicately balanced at present, looking for a momentum swing to break out of recent ranges. It has been hovering around the 20-day EMA for some time and each time it attempts to break away higher or lower, it returns back to the trendline. For the bond market, today sees the auction of MYR5 Billion 2028 Bonds. The current 3-Yr is trading at 2.95%, just below the 1-Yr average.
Fig 3: USDMYR vs 20, 50, 100 and 200-day EMA
source: Bloomberg Finance LP / MNI
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AUSSIE 10-YEAR TECHS: (U5) Recovers With Treasuries
- RES 3: 96.501 - 76.4% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 2: 96.207 - 61.8% of the Mar 14 - Nov 1 ‘23 bear leg
- RES 1: 95.960 - High Apr 7
- PRICE: 95.710 @ 14:34 BST Aug 8
- SUP 1: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 2: 95.275 - Low Nov 14 (cont) and a key support
- SUP 3: 94.707 - 1.0% 10-dma envelope
Aussie 10-yr futures received a boost from the US Treasury rally that followed a poor NFP print. This keeps Aussie 10-year futures toward the top end of the recent range. To the upside, next resistance is at 96.207, a Fibonacci retracement point. Next support undercuts at 95.420 (pierced), the Feb 13 low, ahead of 95.275, the Nov 14 low and a key support. Clearance of this level would strengthen a bearish condition.
SECURITY: Trump To Sign Trilateral Peace Accord With Armenia/Azerbaijan Shortly
US President Donald Trump is shortly due to sign a trilateral peace agreement with Armenian Prime Minister Nikol Pashinyan and Azerbaijani President Ilham Aliyev at the White House. LIVESTREAM The event will provide another opportunity for Trump to style himself as peacemaker, after touting success in brokering peace deals between Rwanda/Congo, Cambodia/Thailand, and India/Pakistan.
- The accord aims to resolve a decade-long dispute over the sovereignty of Nagorno-Karabakh - a breakaway Azerbaijani province that was under de facto Armenian control from the dissolution of the Soviet Union until a 2020 war.
- Trump described the meeting on Truth Social as a “historic peace summit,” noting that the US will also sign “Bilateral Agreements [to] fully unlock the potential of the South Caucasus Region.”
- White House spokeswoman Anna Kelly told reporters that Trump would sign deals with both Armenia and Azerbaijan on energy, technology, economic cooperation, border security, infrastructure and trade.
- A White House official said: "It's about the entire region, and [the leaders] know that that region is known to be safer and more prosperous with President Trump."
- Reuters reports that the US will have development rights to build transportation links in the strategic Zangezur Corridor, a mountainous stretch of Armenian territory between Azerbaijan and its Nakhichevan exclave.
- Politico notes: “But whether this is just a photo opportunity or a lasting end to a conflict that has undermined stability in a region dominated by Russia and Iran will depend on whether the US can address several key challenges.”
FED: Balance Sheet Runoff Continues At Steady $20B/Month Pace (2/2)
Fed asset holdings were little changed in the past week. SOMA runoff totaled $2.8B (composed of $4.2B less nominal Tsy holdings and $1.4B more TIPS), with emergency lending/liquidity facilities $0.7B lower.
- Over the last 4 weeks, the $20B/monthly expected QT pace was roughly adhered to: MBS fell $18B, with Treasury net holdings down around $2B (a fall in TIPS holdings offsetting a slight rise in nominals).
- Discount window usage accounted for the fall in lending facility usage this week; takeup is now down to $4.9B, down $1.3B in the last month and down from the 1-year high of $6.4B set in July which looks to have been a temporary blip higher.
