• Inflation in US recedes but remains high at 8.3%

• BNM lifts OPR by 25bps to 2.00%

Global Highlights

Dollar Index – The Dollar posted a 0.01% decline to trade around 103.846. Inflation in the US continued to stay at all-time high, where the latest number showed the Consumer Price Index rising by 8.3% y/y in April. Looking at the trend, inflation did recede relative to March’s reading of 8.5% y/y, but still above consensus expectation of 8.1% y/y.

US equities and sovereign bonds – Wall Street was bathed in red with the Dow Jones losing 1.02% to 31,834, the S&P 500 down 1.65% to 3,935 and the Nasdaq sliding 3.18% to 11,364. The yield differential between the UST10 and MGS10 was around 139bps Also, the yield differential between the UST10 and UST2 was 35.37bps where the UST2 was at 2.64%

Euro – The Euro declined 0.30% to 1.053. The OECD warned that the European economy should be expecting a further slowdown due to the situation in Ukraine and high energy prices. The composite leading indicator in Europe that measures new car registrations, manufacturing orders and building permits showed that growth momentum is slowing down. On the monetary policy front, the ECB’s Christine Lagarde made it clear that she will support raising the interest rates in July to keep inflation in check. Currently, inflation in the Euro Area stood at 7.5% in April.

British pound – The Pound dipped 0.53% to 1.235. Three former Bank of England monetary policy committee members warned that the UK is in at risk of falling into a recession due to the central bank lifting interest rates to contain price pressure. At the moment, inflation in the UK stood at 7.0% in April, still showing an upward trend despite a gradual interest rate increase since last 2021, bringing the base rate to 1.00% in May 2022.

Japanese yen – The Yen gained 0.37% to 129.970. A key index compiled by the government showed that the Japanese economy slightly improved in March as retail businesses showed some recovery after the lifting of Covid-19- related restrictions.

Chinese yuan – The Yuan inched down 0.06% to 6.735. Inflation in China rose from 1.5% in March to 2.1% in April. The Producer Price Index however rose by 8.0%. The wide gap between consumer inflation and producer inflation could suggest that profit margins for producers were being squeezed to keep consumer prices

Korean won – The Won shed 0.15% to 1,276.050. South Korea’s unemployment rate continued to remain low at 2.7% in April, which is a historical low since February. Total number of people employed rose by 3.2% y/y to 28.1 mil. The South Korean economy is on recovery track on the back of strong fundamentals, including a low unemployment rate and strong exports. The risk lies on an aggressive tightening by the Fed and soaring global commodity prices.

Australian dollar – The Aussie Dollar weakened 0.20% to 0.694. Consumer confidence in Australia deteriorated by 5.6% to 90.4 in May, the same level during the pandemic due to the rising cost of living. The election is two weeks away, and rising prices and cost of living are the main issues in Australia at the moment.

Commodities Highlights

Crude oil – Brent gained 4.93% to US$107.51 per barrel, and WTI was up by 5.96% to US$105.71 per barrel.

Gold – The gold price decreased 0.86% to US$1,838.27/oz.

Malaysia Highlights

Malaysian ringgit – The Ringgit gained 0.13% to 4.377. Bank Negara Malaysia yesterday decided to lift the OPR by 25bps to 2.00%. The normalisation was earlier than expected, where consensus was expecting the first OPR hike to commence in the next meeting in July.

KLSE – The FBM KLCI gained 0.09% to 1,556. Trading activities saw net selling from local institutions and foreign investors at RM40.5mil and RM2.1mil respectively. Local retailers were net buyers at RM42.6mil.

Fixed Income – The MGS benchmark for the 3-year up by 11.5bps to 3.830%, 5-year up 1.0bps to 4.125%, 7-year remained at 4.520%, and 10-year up 2.0bps to 4.380%.

Rates – The IRS yield for the (3Y) was 2bps higher at 3.805%, (5Y) +4.5bps to 4.095%, (7Y) +3.5bps to 4.265%, and (10Y) +5.0bps to 4.470%.

Against major currencies – The ringgit slid against the EUR, GBP, AUD, JPY, CNY, SGD, and PHP, while gaining against the THB, IDR and VND.

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.3700 and 4.3900 while our resistance is pinned at 4.4000 and 4.4200

Source: AmInvest Research - 12 May 2022