HLB Daily - Chinese stocks plummet, refuge in USD safe haven..all eyes on 10-year GII reopening details. (RM3b-RM3.5b print expected)

Key Takeaways

Ø  Renewed growth concerns prompted a hefty plunge in China stock indices again yesterday. Industrial profits fell in Jun and in the first half of the year, adding to signs of slowdown woes in China. This, coupled with anticipated monetary policy shift in the US and probably the UK, is poised to heighten financial markets volatility. Positive US durable goods orders overnight would likely support Yellen’s call for a rate liftoff later this year. Locally, S&P reaffirmed Malaysia’s long term foreign currency credit rating at A- with a stable outlook, citing the country’s strong external position and fairly diverse economy which can help it weather weaknesses in the O&G sector. The rating agency also opines that the 1MDB debacle will not impede policymaking.

Ø  USD weakened against 9 G10s despite absence of any bearish catalysts as US data were mostly firmer. The Dollar Index ended at 2-week low at 96.50, likely on stronger European majors and slowing bids ahead of FOMC meeting. We are slightly bearish on USD in anticipation of slowdown in demand ahead of FOMC decision on interest rate. USDMYR climbed further to a fresh 17-high of 3.8200 at close, as the local unit failed to strengthen against a weaker USD ahead of FOMC meeting later this week amid protracted domestic concerns. MYR weakened against all G10s and major Asian peers except TWD. We expect MYR to remain soft but trade slightly firmer against a softer overnight USD. We continue to expect USDMYR advance to be capped by 3.8220, with likelihood of rejection approaching that level that could trigger a drop to 3.8031.

Ø  MYR govvies saw thinner volume on Monday with only RM1.5b traded with benchmark yields ending mixed. We saw heavier volume traded on the GII space. 30year MGS9/43 meanwhile ended 1 bp higher to close at 4.68% with RM100m done. All eyes on reopening details for 10-year GII which is expected to be announced today. We are anticipating a size of RM3.0-3.5b for this print. Amid softness in Ringgit performance and upcoming US FOMC meeting, we expect trading sentiment to turn a tad more cautious with prospects of fresh leads emerging post FOMC.