• Fed’s latest report points out risks of sharp rise in interest rates

Global Highlights

Dollar Index – The dollar posted a 0.01% decline to trade around 103.651. In the latest semi-annual report published by the Federal Reserve, the central bank warned several risks lingering at the moment, including a sharp rise in interest rates that push up the cost of financing and lower house prices for households, while businesses could face bankruptcies, delinquencies and other types of financial stress.

US equities and sovereign – Wall Street was in a sea of red with the Dow Jones losing 1.99% to 32,246, the S&P 500 down 3.20% to 3,991 and the Nasdaq sliding 4.29% to 11,623. The yield differential between the UST10 and MGS10 was around 135bps Also, the yield differential between the UST10 and UST2 was 44.0bps where the UST2 was at 2.59%.

Euro – The euro gained 0.09% to 1.056. A study by an advisor to the German government concluded that the German economy could lose around €329bil or 12% of the annual output if the Germans accept the Russian gas ban. Prior to the war, Germany imported around 55% of its overall gas from Russia.

British pound – The pound dipped 0.13% to 1.233. The Bank of England’s Michael Saunders said that interest rates need to be raised quickly before inflation pressure worsen and putting more burden on both households and businesses. Saunders voted for a half-percentage point increase in past meetings and said that he will likely continue to consider a half-percentage point hike in the future.

Japanese yen – The yen weakened 0.21% to 130.290. The latest monetary policy minutes of the Bank of Japan showed that many board members wanted to maintain the accommodative monetary policy to support the economy’s recovery from the pandemic. Despite the sudden increase in prices and commodities and the depreciation of the yen recently, one member said that Japan will not encounter the US experience of high inflation at the moment.

Chinese yuan – The yuan slipped 0.96% to 6.731. On the macro front, China’s trade in April 2022 deteriorated due to the closure of major ports amid the zero-Covid policy implemented by the government. Data showed that exports slowed from 14.7% in March 2022 to 3.9% in April 2022. Imports’ growth on the other hand remained at 0.1%. The latest development regarding Covid-19 in China suggested that the government will intervene and provide economic stimulus to cushion impact, but it will not back down on their extreme measure in containing the virus.

Korean won – The won shed 0.12% to 1,274.200. The incoming new government is considering joining the Indo-Pacific economic plan that was blueprinted by the US. Currently, South Korea’s export value is worth around US$531mil, making it the fifth largest exporter of the world.

Australian dollar – The Aussie dollar weakened 1.75% to 0.695. The focus this month will be on the general election, which will be held 21 May 2022. Major issues surrounding the election including the economy, cost of living, and China’s influence on the region.

Commodities Highlights

Crude oil – Brent lost 5.74% to US$105.94 per barrel, and WTI down by 6.09% to US$103.09 per barrel. Global oil markets are worried by concerns over sharp interest rate hikes and recession due to tighter and wider COVID-19 lockdowns in China, which led to slower export growth there.

Gold – The gold price decreased 1.57% to US$1,854.17/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit depreciated 0.42% to 4.385.

KLSE – The FBM KLCI fell 0.97% to 1,549. Trading activities saw net selling from local institutions at RM47.4mil. Local retailers and foreign investors were net buyers at RM33.0mil and RM14.4mil respectively.

Fixed Income – The MGS benchmark for the 3-year remained at 3.825%, 5- year up 1.0bps to 4.155%, 7-year down 4.0bps to 4.550%, and 10-year down 7.0bps to 4.380%.

Rates – The IRS yield for the (3Y) was 7bps lower at 3.805%, (5Y) -11.5bps to 4.100%, (7Y) -15.0bps to 4.295%, and (10Y) -12.0bps to 4.480%.

Against major currencies – The ringgit slid against the EUR, JPY and VND, but gained against the GBP, AUD, CNY, SGD, THB and IDR. The ringgit was unchanged against the PHP.

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.3700 and 4.3950 while our resistance is pinned at 4.4000 and 4.4200

Source: AmInvest Research - 10 May 2022