• Fed speeds up tapering to rein in red-hot inflation

• MYR to fluctuate in the range of 4.2200 and 4.2320 against US dollar

Global Highlights

The dollar index edged lower by 0.06% to 96.511 following the Fed’s decision to accelerate tapering, seeking to end it by March 2022 instead of previous expectation in June 2022 and signalling three rate hikes throughout 2022 as the Fed shifts towards fighting inflation.

The central bank also raised its median PCE inflation outlook for 2021 and 2022. For 2021, it sees inflation rising to 5.3%, up from a previous forecast of 4.2%. For 2022, it expects inflation of 2.6%, up from September’s estimate. Both GDP growth and the unemployment rate for 2021 were revised lower to 5.5% (prev. 5.9%) and 4.3% (prev. 4.8%), respectively. For 2022, the GDP growth rate was revised upward to 4.0% (prev. 3.8%) while the unemployment rate projection was adjusted lower to 3.5% (prev. 3.8%).

US equities ended the day sharply higher following the Fed’s decision. The Dow Jones climbed 1.08% to 35,927, while the S&P 500 rose 1.63%% to 4,710. The UST10-year benchmark yield gained 1.5bps to 1.457%%. Gold rose 0.34%% to US$1,777/oz.

The euro added 0.27% to 1.129. The focus now will be on the ECB meeting later today. The market is widely expecting the ECB to maintain the current rate. Concerns over Europe's slowing economic growth mounted as the region struggles with surging energy prices and new Covid restrictions.

The British pound climbed 0.23% to 1.326 as investors await the Bank of England’s policy statement due today. Due to the faster-than-expected inflation, there is high expectations that the BoE will raise its interest rate amidst Omicron concerns. On the data front, the consumer price inflation rate in the UK rose to 5.1% y/y in November, from 4.2% in the previous month (cons. 4.7%). It was the highest rate since September 2011.

The Japanese yen weakened by 0.30% to 114.04. Bank of Japan governor Haruhiko Kuroda said on Wednesday consumer inflation may approach its 2% target due to rising raw material costs.

The Chinese yuan weakened slightly by 0.01% to 6.368 central bank left a key lending rate medium-term lending (MLF) unchanged. China's retail trade growth slipped to 3.9% y/y in November 2021 from 4.9% in the previous month, (cons. 4.6%), as consumption moderated amid a widespread Covid-19 outbreak. Industrial production in China advanced 3.8% (cons. 3.6%).

Crude oil traded slightly higher as data from the EIA showed a larger crude oil stock drop by 4.58mil barrels, higher than the market forecast of a 2.08mil decline. Brent rose 0.24% to US$74 per barrel while the WTI added 0.20% to US$71 per barrel.

Malaysia Highlights:

The ringgit strengthened slightly by 0.08% to 4.229, the first after three sessions of losses, and was traded with high of 4.2382 and low of 4.2280.

The FBM KLCI rose 0.13% to 1,483 after hitting a more than 1-year low. Detailed transactions showed foreign investors were net sellers with RM62.2mil position, being offset by local institutions and retailers’ net buying flows.

The local bond market was traded lower with the 3-year at +9.0bps to 2.880%, 5-year +2.0bps to 3.170%, 7-year +1.0bps to 3.475% and the 10-year +1.0bps to 3.590%.

The IRS yields were mixed with the (5Y) +1.5bps to 2.940%, and (7Y) -1.5bps to 3.160%, but the (3Y) and (10Y) remained unchanged at 2.725% and 3.310% level. KLIBOR added 1.0bps to close at 2.040%.

Against major currencies, the ringgit strengthened vs. the EUR by 0.35% to 4.768, vs. the JPY by 0.35% to 3.708, and vs. the CNY by 0.09% to 1.506 but weakened vs. the GBP by 0.35% to 5.614, and vs. the AUD by 0.04% to 3.014. Against its regional peers, the ringgit was also mixed as it appreciated vs. the SGD by a slight 0.01% to 3.094, vs. the THB by 0.04% to 7.901, vs. the IDR by 0.15% to 3,390, and vs. the VND by 0.30% to 5,449, but depreciated vs. the PHP by 0.04% to 11.892.

MYR Outlook For The Day

We expect the MYR to trade between our support level of 4.2150 and 4.2200 while our resistance is pinned at 4.2320 and 4.2360.

Source: AmInvest Research - 16 Dec 2021