The first three sessions of the week haven’t been appetizing as the US political uncertainties, the ongoing geopolitical jitters in the Middle East, and the mounting expectation that Federal Reserve (Fed) would slow down the pace of monetary easing pushed investors to the sidelines.

Gold ran from record to record despite the rising US yields which, in return, rise not only because of the weakening dovishness regarding the Fed rate cut bets, but also because of a general lack of appetite before the upcoming US presidential election. The world is worried that a potential Trump win would further hammer international trade and fan global inflationary pressures. The IMF lowered its global growth forecast for next year to 3.2% due to accelerating risks from wars to protectionism. It however left its 2024 projection unchanged, and expects inflation to slow to 4.3% in 2025 from 5.8% this year.

Over at the Fed, Mary Daly said that she hasn’t seen any information that would suggest that they shouldn’t continue cutting rates but other members including Neel Kashkari say that the rate cuts should continue at a moderate speed. Activity on Fed funds futures assess around 92% chance for a 25bp cut in the November meeting, but there is a mounting speculation that the Fed could make a pause to its nascent loosening policy in December.

As such, the US dollar continues to recover against most majors. The greenback is offered this morning in Asia, but the dollar index rallied more than 4% since the September dip. The EURUSD sold off to 1.0761 yesterday as the rate cut bets in the Eurozone remain strong on the back of inflation that seems under control and weak economic and corporate data. Many European Central Bank (ECB) members sound increasingly dovish. Olli Rehn for example said that the zone’s ‘dire economy’ may bolster disinflationary pressures, Bank of France’s Francois Villeroy called for more agility with future rate cuts to avoid acting too slowly and Mario Centeno said that the ECB should consider ramping up monetary easing if the data backs such move. The growing divergence between the Fed and the ECB outlooks should continue to support a deeper selloff in the EURUSD. Price rallies should meet resistance near 1.0870, which shelters the minor 23.6% Fibonacci retracement on September-October selloff and the pair should remain in the bearish trend below 1.0935 – the major 38.2% Fibonacci retracement on that selloff.

Elsewhere, the USDJPY cleared the 150 resistance, pulled out the 200-DMA and is trading past the 152 this morning as the continuation of the rally that started with dovish remarks from the new PM who suggested that the country doesn’t need another rate hike this year. The yen could however need another FX intervention to stop it from falling too fast too low.

In Britain, Cable slipped below the 100-DMA and remains under a selling pressure as the Bank of England (BoE) Governor Bailey says that inflation in Britain is weakening faster than they anticipated, and in Canada, the Loonie hit the lowest levels against the US dollar since the beginning of August after the Bank of Canada (BoC) delivered a 50bp cut yesterday, as expected.

There will certainly be a correction and a consolidation to the US dollar rally, but unlikely before the US election.

In equities, the European stocks remain under pressure. The rising dovish voices at the ECB are favourable but the earnings season is not going well for the European companies. ASML announced weak results, Deutsche Bank warned against rising bad debt due to morose economic environment and announced that it will set aside more money than expected to deal with soaring loans while the European car and luxury good makers are under the pressure of weakening demand at home and in China. Hermes is due to report earnings today and could reveal the slowest quarter in 3 years – a weakness that doesn’t concern business across the Atlantic Ocean.

On the contrary, the US big banks announced a strong quarter, TSM blew past expectations last week hinting that the US chipmakers have likely had a good quarter, Netflix did better than expected and Tesla – which has been struggling lately – came up with better-than-expected results yesterday, after the bell. The company reported a 8% revenue growth and a 17% jump in net income, said that their costs per vehicle were pulled down to the lowest levels (around $35’100), the operating margin got a boost from 7.6% to 10.8% since last year and Cybertruck reached profitability for the first time. Tesla shares jumped 12% in the afterhours trading. The latter could give a boost to the S&P500 and Nasdaq 100 after a few days of hesitation and retreat.

Source: Euronews

Malaysia’s recent stability and steady growth are paving the way for the government to implement critical reforms, including the overhaul of costly fuel and power subsidies, said Morgan Stanley Investment Management.

In a research note on Thursday, the investment management company said as a key beneficiary of the China Plus One strategy, Malaysia is well-positioned for more investments, particularly in its expanding data centre sector, capitalising on the ongoing “tech war” between the United States and China.

"We believe Malaysia is worth another look. Political stability has encouraged much-needed reforms, while Madani Economy, a 10-year development plan launched in July 2023 aims to reduce red tape, promote economic growth of regions outside Peninsular Malaysia and enhance the efficiency of government-related enterprises," it said.

“Subsidies peaked at 4.3% of gross domestic product (GDP) in 2023, accounting for almost 25% of total government expenditure. This year's budget has projected a reduction in subsidies by over 30%,” the firm said.

It noted that the government has already removed support from chicken and eggs and applied targeted subsidies on diesel and electricity.

"The real test will come with the rationalisation of RON95 prices, which accounted for around 60% of subsidies in 2023," it said, adding that the rise in RON95 prices will likely be phased in, starting later this year or in early 2025.

On the positive side, the research note said Malaysia is witnessing a resurgence in foreign direct investment (FDI) after years of stagnation.

"Since 2021, Malaysia has attracted US$24 billion in data-related investments helping the country promote itself as Asia’s data centre hub," it said.

It added that with affordable land, electricity and water along with a stable geological environment outside of earthquake zones, it has become an attractive destination for tech companies, which should also bolster the ringgit.

Source: The edge markets

Energy – Large US crude build

Having sold off more than 1.4% yesterday, ICE Brent bounced back this morning and edged towards $76/bbl. The market continues to be caught between supply risks related to ongoing Middle East tension and lingering demand concerns. The outlook for a comfortable 2025 oil balance will also be playing a role in price action.

The EIA’s weekly inventory report was fairly bearish. US commercial crude oil inventories increased by 5.47m barrels over the last week, well above the 1.6m barrels increase the API reported the previous day. This stronger-than-expected build occurred despite refiners increasing their utilisation rates by 1.8pp WoW, which led to crude inputs growing by 329k b/d over the week. Stronger crude oil imports increased by 902k b/d and contributed to the inventory build. On the product side, gasoline inventories increased by 878k barrels, while distillate stocks fell by 1.14m barrels. On the demand side, while apparent gasoline demand was stronger over the week, the total implied demand for refined products fell by 446k b/d WoW.

European natural gas prices strengthened yesterday with TTF settling above EUR41/MWh. Storage remains comfortable at more than 95% full, although the pace of builds has slowed in the last two days. And while storage will start the heating season in a very comfortable position, it's looking less likely that storage will be 100% full by early November. The market continues to be buoyed by supply risks. These include the lingering tension in the Middle East, as well as an unplanned supply outage at the Sleipner platform in Norway. The latest positioning data shows little change in the investment fund net long in TTF. Funds continue to hold a net long of almost 202TWh.

Metals – Palladium sanction risk

Palladium prices have rallied in early morning trading today, up more than 4.6% at the time of writing, after reports that the US asked G-7 members to consider placing sanctions on Russian palladium and titanium. However, it may be difficult to convince other nations to place sanctions on Russian palladium given its dominance as a global supplier, making up around 40% of global supply.

The zinc cash/3m spread on the LME moved into deeper backwardation, suggesting near-term supplies are tightening. The premium of the LME cash contract over the benchmark three-month contract surged to a little more than $58/t yesterday, the strongest it has been since September 2022. The key spread moved into backwardation at the end of last week after remaining in contango for most of the year. Last week, Sibanye Stillwater Ltd. said that it expects operations at its Century zinc mine in Australia to be suspended until mid-November after a bushfire damaged some equipment. Century produced 76kt of zinc last year.

The global zinc market remained in a supply surplus of 127kt in the first eight months of the year, compared to a supply surplus of 418kt a year earlier, data from the International Lead and Zinc Study Group (ILZSG) shows. Total refined production fell by 1% YoY to 9.1mt, while total consumption rose by 2.3% YoY to 9mt between January and August 2024. For lead, total production decreased by around 1.2% YoY to 8.58mt, while consumption fell by 1.4% YoY to 8.57mt over the first eight months of the year. The global lead market witnessed a marginal surplus of 8kt in Jan’24-Aug’24, compared to a deficit of 10kt during the same period last year.

Agriculture – Brazil’s corn exports to decline

The latest estimates from the National Association of Cereal and Grain Exporters (ANEC) show that Brazil's corn exports could fall by 24.1% YoY to 41mt for the 2024 season. The fall in exports is largely attributed to the recovery of supply in key producing countries (Argentina, US, Europe, and Ukraine) and slowing demand from China.

Argentina’s cumulative corn shipments for the season (January to August) stood at 24.5mt, up 40% YoY. Meanwhile, China’s corn imports from Brazil haven’t even reached 2mt so far this year as the nation plans to achieve self-sufficiency in producing the grain. This could leave Brazil's corn-ending stocks at 10mt by the year-end, and if realised, this would be the highest level since 2018.

The next two years are crucial for Malaysia as the country prepares for Visit Malaysia Year 2026 (VMY2026), said Minister of Tourism, Arts and Culture Datuk Seri Tiong King Sing.

He said the cultural tourism industry in Malaysia continues to grow from strength to strength as Malaysia expects to welcome some 36.5 million tourists and generate RM147.1 billion in receipts for VMY2026.

“In the context of Asean cultural tourism, VMY2026 brings with it the opportunity to cross-sell and re-market the region to tourists visiting Malaysia.

“There are ample opportunities for industry stakeholders across the region to work together and benefit as a whole,” he said in a speech during the opening ceremony of the 11th Meeting of Asean Ministers Responsible for Culture and Arts (11th AMCA) and 20th Senior Officials Meeting on Culture and Arts (20th SOMCA) and Related Meetings with Dialogue Partners here on Thursday.

Also present were Asean secretary-general Dr Kao Kim Hourn, Melaka Tourism, Heritage, Arts and Culture Committee chairman Datuk Abdul Razak Abdul Rahman and delegates from participating countries.

Tiong said youth engagement, creative economy and digitalisation will be the main focus under Malaysia's AMCA Chairmanship for the next two years.

He said, in the run-up to this AMCA meeting, Malaysia has already initiated a number of cultural projects this year, namely Sustainability in the Creative and Cultural Industries Programme: Asean & Beyond; Asean Heritage Train, a collaboration with Lao PDR and Thailand and the Conference on the Proposed Asean-China Heritage: Dimensions of National Arts which was held a few weeks ago in Perlis.

“As a side event, Malaysia is collaborating with the Malaysian Youth Council to organise the Asean Youth and Heritage Forum themed 'Celebrating Roots and Reimagining the Future'.

"Represented by all Asean Member States and Timor-Leste, this programme is running concurrently with our meeting today,” he said.

Other than that, Malaysia also organised AMCA+3 Meeting with China, Japan and Korea in conjunction with the 11th AMCA and 20th SOMCA meeting.

“We appreciate the friendly relations and mutually beneficial dialogue cooperation and partnerships in culture and arts established with the three dialogue partner countries.

“Together with AMCA+3, we continue to mainstream and propagate the role of culture and arts towards fostering a culture of peace, tolerance and mutual understanding through flagship initiatives like the Asean Festival of Arts, ASEAN City of Culture and Best of Asean Performing Arts,” he said.

Tiong also urged participating countries to continue working closely together to further strengthen our regional relations and cooperation as well as enhance efforts to preserve, conserve, promote and appreciate Asean’s culture, arts and heritage.

“It is evident that the role of culture in international relations has grown over the years, shifting more towards a people-to-people approach.

“As we continue to promote cultural diversity, I think we can all agree that greater connectivity is a means to foster deeper people-to-people ties,” he said.

Source: The edge markets