• New variant news triggers flight response

• MYR to fluctuate in the range of 4.2303 and 4.2633 against US dollar

Global Highlights

The dollar index tumbled sharply by 0.71% to 96.089 as investors and traders dashed to the safe haven on renewed concerns of news of an emergent Covid variant of concern known as the Omicron. It triggered fears that it could stall the current economic recovery progress with the reimposition of lockdowns and reducing the expectations that the Fed will raise interest rate somewhere in mid-2022. This is despite experts' view that it is still too early to gauge the effects of the new variant.

Equities retreated sharply from their record highs as the Dow Jones dropped 2.53% to 34,899 while the S&P 500 tumbled 2.27% to close at 4,595. The UST10-year yield was sent lower by 16bps to close at 1.473% amidst the flight to safety. Gold seemed to be indifferent as it rose slightly by 0.77% to US$1,803/oz.

The euro rebounded as it climbed 0.96% to 1.132 due to the weakening dollar. During her interview last week, ECB president Christine Lagarde reaffirmed the central bank’s stance of “transitory” inflation. The new covid strain means that the ECB could bolster its dovish view.

The British pound increased to 0.11% to close at 1.334. Uncertainties remained on the BoE's views and if it will hike interest rate as soon as the next meeting in December added with the recent pandemic development.

The Japanese yen appreciated significantly by 1.72% to change hands at 113.38 due to its safe-haven status as global recovery is seen as shaky due to the discovery of the new variant.

In the Meantime, the Chinese Yuan Weakened by 0.11% to 6.393.

Investors unloaded crude oil as Brent slumped by as much as 11.55% to US$73 per barrel while WTI fell 13.06% to US$68, the lowest in 11 weeks. The oil market was already under pressure due to the US call for a coordinated strategic reserve release previously.

Malaysia Highlights:

The ringgit was also on the weak footing as it depreciated 0.21% to 4.239, almost reaching its weakest level since August 2021. It was traded at a high of 4.248 and low of 4.228.

The FBM KLCI closed lower by 0.35% to 1,512 due to the risk-off sentiment, in line with decline of stock markets in major economies and in the regional space. Detailed transactions showed that local institutions were net sellers with RM50.5mil, offset by net buying from retailers and foreign investors.

On the local bond market, the yield curve shifted lower with the 3-year at -5.0bps to 2.700%, 5-year -5.5bps to 3.125%, and 10- year -4.0bps to 3.530%, but the 7-year was unchanged at 3.415%.

The IRS yield curve also shifted down as well with the (3Y) -6.0bps to 2.685%, (5Y) -6.0bps to 2.930%, (7Y) -7.5bps to 3.155%, and (10Y) -8.0bps to 3.320%. Elsewhere, KLIBOR +1.0bps to1.970%.

Against major currencies, the ringgit was mostly weaker. It depreciated vs. the EUR by 0.58% to 4.775, vs. the GBP by 0.07% to 5.643, vs. the JPY by 2.09% to 3.744, vs. the CNY by 0.17% to 1.507, but appreciated vs. the AUD by 0.66% to 3.021. Regionally, the ringgit strengthened against the SGD by 0.07% to 3.091, vs. the THB by 0.85% to 7.959, vs. the IDR by 0.28% to 3,387, but weakened vs. the PHP by 0.27% to 11.889, and vs. the VND by 0.23% to 5,350.

MYR Outlook For The Day

We expect the MYR to trade between our support level of 4.2263 and 4.2303 while our resistance is pinned at 4.2633 and 4.2673.

Economic Update

Malaysia - Inflation Gaining Momentum

October’s headline inflation rate rose to 2.9% from 2.2% y/y in September, the fastest pace since June. This means that the average inflation rate from January to October 2021 is 2.3%. On a monthly basis, the rate increased to 0.7% m/m, the highest monthly rate since January 2021.

Despite the government’s move to contain the fuel price with a ceiling price, elevated commodities prices, a persistent supply chain issue, and labour shortage are raising the cost of businesses which could cause transfer pricing, and ultimately pushing the consumers’ goods and services price higher. For the full year of 2021, we are maintaining our inflation projection at 2.6%– 2.8% with no change to the OPR outlook of 1.75%.

Source: AmInvest Research - 29 Nov 2021