Summary  

• Following the 50-basis point US rate cut on September 18, subsequent releases of strong economic data and limited signs of easing inflation in the US have driven yields higher across all bond markets.
• This has prompted a reassessment of the US rate cut trajectory, where current market expectations indicate only one to two more rate cuts in 2024, signalling a potential decision to pause in rate cuts to be made in the Federal Reserve’s (Fed) November meeting. Consequently, the yield curve has shifted higher across the US, eurozone, and Malaysian bond markets.
• The ringgit depreciated by 5.3% month-to-date (MTD) to USDMYR 4.34 as of October 25, in line with a 3.5% rise in the Dollar Index. This depreciation signals potential foreign outflows in October, as foreign inflows were already waning in September. With the US elections looming, uncertainties persist with potential foreign outflows, causing the ringgit to trade sideways in the short term.
• Domestic prospects for Malaysia are encouraging, with advance estimates indicating strong gross domestic product (GDP) growth in 3Q2024. Alongside the announcement of Budget 2025, the government upgraded its growth projections for both 2024 and 2025. Although there was a minor setback in exports in September, recent stimulus measures in China are expected to support a rebound in Malaysia’s exports.
• The global disinflation trend remains intact. Malaysia’s year-to-date (YTD) inflation remains low, though there are upside risks projected in 2025. US inflation remained above the targeted 2%, at 2.4% in September (Aug: 2.5%), while eurozone inflation eased sharply to 1.7% (Aug: 2.2%).