• World Bank cuts growth forecast again as stagflation worry looms

Global Highlights

Dollar Index – The greenback lost 0.12% to 102.32 as risk-on mode recovered. Data showed that US exports increased by 3.5% y/y to US$252.6 billion in April 2022, the highest ever in record, resulting trade deficit contraction of US$87.1 billion. On another note, World Bank has cut 2022 growth forecast to 2.9% on the back of stagflation concerns. The initial projection in January was 4.1% followed by a 3.2% estimate in April.

US equities & sovereign bonds – Wall Street was on better footing as the Dow Jones rose 0.80% to 33,180, the S&P 500 climbed 0.95% to 4,161 and Nasdaq added 0.95% to 4,161. The UST10Y benchmark yield retreated 6.6bps to 2.974% while the UST2Y yield was relatively unchanged at 2.726%, making the yield spread between the two falling to 24.7bps.

Euro – The euro inched up by 0.07%% to 1.070. The S&P Global Eurozone Construction PMI fell to 49.2 in May 2022 from 50.4 in the previous month, indicating the first contraction in the sector in nine months amid higher raw material prices and supply-chain disruptions. The imminent key rate increase should constrain demand as well.

British pound – The pound climbed 0.48% to 1.259, the highest level in one week. According to BRC data, retail sales in the UK shrank 1.5% y/y in May 2022, marking a decrease for the third straight month as the higher cost of living crushed consumer demand.

Japanese yen – The yen weakened further as it sank 0.54% to 132.59, the lowest level in 20 years as the currency market is testing Bank of Japan’s (BoJ) resolution in its dovish stance. BoJ governor Haruhiko Kuroda stated that despite the most recent inflation reading reached 2.1%, it did not mean that the inflation target has been reached. Also, the tightening move should be warranted by a robust wage growth in the economy. On the data front, nominal wages in Japan rose 1.7% in April 2022 from a year earlier, growing for the fourth month straight.

Chinese yuan – The yuan shed 0.25% to 6.670 as currency traders await US inflation data that is set to be released this Friday. As swift and strong actions reined in epidemic flare-ups, China's economic engine started rumbling again. Data from the China Federation of Logistics and Purchasing (CFLP) showed that the China Bulk Merchandise Index grew 1.6 percentage points in May from the previous month to 101.3%, indicating improvements in factory production and market demand following the opening of the economy.

Korean won – The won also depreciated by 0.31% to 1,258. According to the Institute of International Finance (IIF), South Korea’s household debt reached 104% of the GDP, which makes it the highest among 36 major economies.

Australian dollar – The Aussie dollar added 0.54% to 0.723 following the Reserve Bank of Australia’s (RBA) move in raising the cash rate by 50bps to 0.85% during yesterday’s meeting. This is the first back-to-back rate hike since 2010 as the board said the monetary stimulus is no longer necessary amid the strength of the economy added with the current inflation pressures.

Commodities Highlights

Crude oil – Oil prices rebounded as tight supply worries stemming from the reopening of China’s economy continued to fuel the bullish run. Brent settled 0.89% higher at US$120 per barrel while WTI climbed 0.77% to US$119 per barrel.

Gold – The gold price gained 0.59% to US$1,852/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened slightly by 0.13% to 4.395 and traded within the range of 4.399 and 4.389. Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed said that the 12th Malaysia Plan (12MP) aims to shift the country’s economic model to a sustainable circular economy which can provide long-term resilience while addressing the issues of climate change.

KLSE – The FBM KLCI lost 0.77% to 1,526, dragged by the plantation and industrial products and services. Detailed transactions showed that the foreign investors and local institutions were the net sellers with RM31.7mil and RM12.2mil, respectively, while being offset by the local retailers with RM43.9mil buying position.

Fixed income – The MGS benchmark yields treaded higher with 3-year +2.0bps to 3.455%, 5-year +1.0bps to 3.750%, 7-year +3.0bps to 4.155%, and 10-year +2.5bps to 4.245%.

Rates – The IRS yield for (3Y) +4.5bps to.3.655%, (5Y) +10.0bps to 3.895%, (7Y) +8.8bps to 4.018%, and (10Y) +8.5bps to 4.155%.

Against major currencies – The ringgit was on firmer position when it went up against EUR, GBP, AUD, JPY, CNY, SGD, THB, and PHP but went down against IDR and VND.

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.3800 and 4.3850 while our resistance is pinned at 4.4100 and 4.4200.

Source: AmInvest Research - 8 Jun 2022