AmInvest Research Reports

Economics & FX Highlights - Fed’s meeting outcome in focus

AmInvest
Publish date: Wed, 26 Jan 2022, 09:43 AM
AmInvest
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  • Fed’s meeting outcome in focus
  • MYR to fluctuate in the range of 4.1800 and 4.1920 against US dollar

Global Highlights

The dollar index continued to be bullish as it inched higher 0.03% to 95.948, its two-week high as market players remained risk-off amidst Russia and the West conflict over Ukraine and ahead of the Federal Reserve’s meeting decision. Among local data, the House Price Index increased to 17.5% y/y in November from 17.4% in October 2021.

US equities were in the red again as the Dow Jones slipped 0.19% to 34,298 and the S&P 500 fell 1.22% to 4,356. The UST 10- year benchmark yield slid 0.17bps to land at 1.769%. Gold remained attractive as it rose 0.27% to US$1,848/oz.

The euro dropped further by 0.22% to 1.130, moving away from recent two-month high. The Ifo Business Climate indicator for Germany rose to 95.7 in January 2022, the first improvement in seven months (cons. 94.7), as easing supply disruptions brightened the outlook for manufacturers.

Th British pound paused from its bearish trend as it added 0.10% to 1.350. In the political space, the pressure on UK PM Boris Johnson heightened dramatically when the police began formally investigating allegations that he and his staff held parties during the first lockdown in 2020.

The Japanese yen firmed 0.07% to 6.326, taking advantage of its safe-haven status. In the meantime, the Chinese yuan retained its upper hand as it strengthened 0.07% to its more than 3-year high at 6.326, driven by strong corporate demand ahead of the Lunar New Year.

Meanwhile, supply concerns in the crude oil market intensified amidst the Ukraine-Russia tension and threats on UAE infrastructure as OPEC+ struggled to hit its targeted monthly output increase. Brent crude soared 2.24% to US$88 per barrel while the WTI crude surged 2.75% to US$86 per barrel.

Malaysia Highlights:

The local currency weakened slightly by 0.02% to 4.190 as the greenback continued its uptrend. It was traded with a high of 4.1902 and 4.1858. On the data front, Malaysia's Leading Index increased by 1.6% m/m in November 2021, up from a 0.9% drop in the prior month.

The FBM KLCI ended in red as it lost 13 points or 0.85% to 1,509, marking the 7th consecutive day of loss, in tandem with a regional sell-off. Detailed transactions revealed that local institutions and retailers were net sellers with RM62.6mil and RM26.3mil, respectively, offset by foreign net buying with RM89.0mil.

In the local bond market, it was another quiet day with benchmark yields had little to no change. The 5-year +1.0bps to 3.300%, and 10-year +1.0bps to 3.700%, but the 3-year and 7-year were flat at 2.820%, and 3.500%, respectively.

The IRS yield curve flattened when the (3Y) +1.2bps to 2.860%, and (10Y) -2.0bps to 3.530%, but the (5Y) and (7Y) remained at 3.125% and 3.330%. KLIBOR was at 1.970%.

Against major currencies, the ringgit was mixed as it strengthened vs. the EUR by 0.31% to 4.730%, GBP by 0.41% to 5.649, and AUD by 0.05% to 2.996, but weakened vs. the JPY by 0.13% to 3.680, and CNY by 0.10% to 1.510. Against its regional peers, the ringgit was also mixed. It firmed against the IDR by 0.08% to 3,425, but eased, THB by 0.14% to 7.871, PHP by 0.07% to 12.236, and VND by 0.01% to 5,410.

Economic Highlights: 26 January 2022

MAS Surprise Move

Highlights

In a surprise move, Singapore's central bank tightened its monetary policy settings on Tuesday, marking the first out-of-norm move in 7 years. Amidst global supply constraints and strong economic demand which elevate inflation pressures across the region, the Monetary Authority of Singapore (MAS), which typically holds scheduled meeting twice a year in April and October, said that it would raise the rate of appreciation of its policy band.

Based on its latest statement, the main concern viewed by the MAS was price related, where according to the statement, “…the factors that drove global and regional inflation higher in late 2021 are likely to remain in play for a period”. This showed that MAS’ number one concern at the moment is inflation, where it also revised its core inflation forecast upward from 1.0-2.0% to 2.0-3.0%. It also meant that MAS is taking a proactive strategy rather than a reactive one to manage prices.

Analysis

The central bank’s move is to allow for a stronger SGD towards taming price increases for the man in the street, although the impact will not be immediate. Nevertheless, we should expect prices to continue to rise quickly, with core inflation set to go above 3.0 % by March, exceeding the central bank’s latest forecast range by averaging at 3.1% for this year.

From a macro perspective, the key indicator that needs to be paid attention to is the GDP numbers, where “… the output gap is expected to turn slightly positive”. The 4Q21 numbers will be published on 25 Feb, and this could give some indication where the GDP numbers will be heading for the whole of 2022.

On a plus note, a stronger SGD may also suggest more favourable exchange rates for travellers heading overseas. In this case. regional economies including Malaysia can be a beneficiary, subject to the situation surrounding Covid-19.

Overall, we are not ruling out another round of tightening in MAS’ meeting in April 2022 (or earlier) if the price pressure does not subside. The key determinant would be whether: (i) core inflation peaks at the 3.0% handle and stabilises; (ii) private consumption remains buoyant to drive car and accommodation prices highr; and (iii) there are more domestic fee adjustments down the road, in addition to imported inflation.

Going against the dollar, the Singaporean dollar strengthened by 0.16% to 1.344. Looking at the SGD/MYR pair, it firmed 0.09% to 3.118.

MYR Outlook For The Day

We expect the MYR to trade between our support level of 4.1770 and 4.1800 while our resistance is pinned at 4.1920 and 4.1950.


 

Source: AmInvest Research - 26 Jan 2022

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