• Inflation in the UK and Euro Area continues to remain high

Global Highlights

Dollar Index – The dollar posted a 0.44% increase to 103.810. US Treasury Secretary Janet Yellen said that the US is unlikely to fall into a recession despite high interest rates to fight inflation that could dampen growth prospects. On the monetary policy, Fed chair Jerome Powell, with a more hawkish tone, said that the Fed will continue to raise rates until the price pressure cools down.

US equities and sovereign bonds – Wall Street was in a sea of red with the Dow Jones dropping 3.57% to 31,490, the S&P 500 tumbling 4.04% to 3,924 and the Nasdaq plunging 4.73% to 11,418. The yield differential between the UST10 and MGS10 was around 156.10bps Also, the yield differential between the UST10 and UST2 was 21.46bps where the UST10 was at 2.88% UST2 was at 2.67%

Euro – The euro lost 0.82% to 1.046. Inflation in the Euro Area was revised to 7.4% y/y from the preliminary estimate of 7.5% y/y in April 2022. The main impetus for the high inflation was soaring energy and food prices due to higher global commodity prices. Core inflation was also higher, edging up to 3.9% y/y. Last week, European Central Bank officials signalled that the central bank will raise rates as early as July 2022 in response to the high inflation.

British pound – The pound slid 1.22% to 1.234. Inflation in the UK continued to climb. The latest number showed that inflation stood at 9.0% y/y in April 2022, the highest ever recorded in 40 years. The main impetus for the increase was higher gas and electricity prices. Inflation in the UK was relatively higher than most European countries since Brexit was also a factor that pushed up prices.

Japanese yen – The yen climbed 0.89% to 128.230. The Japanese economy shrank at an annual rate of 1.0% in the first quarter this year. The prime reason was due to soaring import costs that dampened demand, and Omicron-related restrictions. Recovery is expected to remain slow due to soaring energy prices, input costs, and the recent yen depreciation that could hurt consumer and business sentiments.

Chinese yuan – The yuan shed 0.24% to 6.754. Chinese officials said that the economy will return to normal operations soon. Currently, China is removing some of its measures of containing the Covid-19 outbreak in response to the disappointing production number that declined by 2.9% y/y last week.

Korean won – The won was up 0.65% to 1,266.570. The Korean Development Institute lowered its growth forecast in 2022 from 3.0% to 2.8%. The prime reason for the downgrade was rising energy and food prices due to the war in Ukraine, and aggressive normalisation from the Federal Reserve.

Australian dollar – The Aussie dollar slid 1.05% to 0.696. The general election will be held on 21 May, where the high cost of living will be the main concern as Australians head to the poll.

Commodities Highlights

Crude oil – Brent was down 2.52% to US$109.11 per barrel, and WTI was also down by 2.50% to US$109.59 per barrel.

Gold – The gold price was up 0.08% to US$1,816.60/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit slipped 0.16% to 4.397. Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said that Malaysia is not at risk of a recession this year amid the war in Ukraine, high commodity prices and global monetary policy tightening. The government maintains its growth target this year of 5.3% –6.3% this year, supported by an expansionary fiscal policy.

KLSE – The FBM KLCI closed higher by 0.41% to 1,555. Local institutions were net buyers at RM13.2mil. Local retailers and foreign investors were net sellers at RM2.6mil and RM10.6mil respectively.

Fixed Income – The MGS benchmark for the 3-year was up by 0.5bps to 3.680%, 5-year remained at 4.010%, 7-year down 2.5bps to 4.410%, and 10- year remained at 4.460%.

Rates – The IRS yield for (3Y) was unchanged at 3.725%, (5Y) down by 0.5bps to 3.925%, (7Y) up 2.5bps to 4.125%, and (10Y) up 3.0bps to 4.280%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.3700 and 4.4000 while our resistance is pinned at 4.4100 and 4.4300

Source: AmInvest Research - 19 May 2022