• US economy contracted in first quarter

• Britain introduces windfall tax

Global Highlights

Dollar Index – The dollar posted a 0.22% decline to 101.829. On the macro front, the US economy declined by 1.5% q/q in the first half of the year. Private consumption and investment were still growing in the first quarter, but the drag was caused by exports, which declined 5.4% q/q, and government spending that fell 2.7% q/q.

US equities and sovereign bonds – Wall Street was in green with the Dow Jones rising 1.61% to 32,637, the S&P 500 gained 1.99% to 4,058, and the Nasdaq up 2.68% to 11,741. The yield differential between the UST10 and MGS10 was around 137.11bps Also, the yield differential between the UST10 and UST2 was 27.11bps where the UST10 was at 2.75% and the UST2 at 2.48%.

Euro – The euro gained 0.41% to 1.073. Most of European bond yields closed higher in recent days due to hawkish statements by several members of the European Central Bank, including president Christine Lagarde. There is a possibility that the ECB will raise interest rates by 50bps to combat inflation.

British pound – The pound up 0.21% to 1.260. The British government announced a 25% windfall tax on the oil and gas sector. At the same time, a £15 billion economic support was also announced to assist households struggling with the cost of living amid the soaring energy prices.

Japanese yen – The yen was 0.16% stronger to 127.120. The Services Producers Price Index in Japan increased by 1.7% y/y, faster than the previous month’s 1.3% y/y. The main impetus for the increment were rising freight costs, and rental feels. Producers also cited that they have begun to pass the costs to consumers, which could raise consumer inflation in months to come.

Chinese yuan – The yuan slid 0.68% to 6.739. Chinese Premier Li Keqiang has said that the China’s economy is in much a worse state after the Covid-19 outbreak in late 2019. The government will not be backing from its zero-Covid stance but will continue to provide support for the economy.

Korean won – The won slipped 0.24% to 1,267.610. The Bank of Korea hiked the interest rate by 25bps to 1.75%, making this a cumulative 125bps increase within 12 months. The hike was in response to the recent high inflation numbers that stood at 4.8% in April 2022.

Australian dollar – The Aussie dollar up 0.10% to 0.710. Australia’s private capital expenditure declined by 0.3% q/q, due to recent floods and supply bottlenecks that forced some businesses to delay their investments.

Commodities Highlights

Crude oil – Brent was higher by 2.96% at US$117.40 per barrel, and WTI closed higher by 3.41% to US$114.09 per barrel.

Gold – The gold price declined 0.15% to US$1,850.63/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit depreciated by 0.06% to 4.397. Finance Minister Tengku Zafrul said that the Malaysia’s economy is growing steadily due to the rise in commodity prices and said that there is enough room for the interest rates to be higher without having any adverse impact on the economy.

KLSE – The FBM KLCI closed higher by 0.36% to 1,541. Local institutions were net sellers of RM48.7 mil. Local retailers and foreign investors were net buyers of RM5.6 mil and RM43.1 mil respectively.

Rates – The IRS yield for (3Y) was 5.5bps lower at 3.485%, (5Y) 6.5bps lower at 3.655%, (7Y) lower 11.0bps to 3.800%, and (10Y) lower 7.5bps to 3.980%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.380 and 4.4100 while our resistance is pinned at 4.4200 and 4.4300

Source: AmInvest Research - 27 May 2022