• Hotter-than-expected US inflation may prompt Fed to tighten faster

Global Highlights

Dollar Index – The greenback surged 0.90% to 104.45 following the release of unexpectedly faster growth of consumers’ price level. The US inflation rate went up to 8.6% in May, the highest in 41 years and above market expectation of 8.3%. Also, consumer sentiment fell sharply to a record low of 50.2 in June, easily underwhelming market forecasts of 58, as red-hot inflation continued to haunt households’ wallet. The higher inflation rate is causing aggressive rate hike cycle worries to resurface.

US equities & sovereign bonds – Wall Street resumed its bearish trend for the third straight session as the Dow Jones fell 2.73% to 31,393, S&P 500 dropped 2.91% to 3,901 while the tech heavyweight Nasdaq tumbled 3.52% to 11,340. The UST10Y benchmark yield continued to climb when it added 11.4bps to 3.156%, a level we have not seen since 2018, while the UST2Y climbed to 3.063%, making the yield differentials between the two to be at 9.2bps, a significant drop from 23bps from the previous session.

Euro – The euro stumbled 0.92% to 1.052, the lowest level since mid-May weighed by the stronger dollar. As the ECB unveiled its plan to increase interest rates, the Italy’s 10Y yield has been climbing aggressively and landed at 3.846% by the end of last Friday.

British pound – The pound also bore the brunt of the bullish dollar as it lost 1.42% to 1.232. An analysis by the Centre for European Reform (CER) showed that the UK economy has shrunk by 5.2% compared with its peers due to Brexit and the Covid-19 pandemic.

Japanese yen – The yen depreciated slightly by 0.04% to 134.41. The currency continued to be pressured by rising global interest rates, an ultra-dovish BoJ and high energy costs.

Chinese yuan – The yuan weakened 0.25% to 6.709. According to data, China's inflation rate was unchanged at 2.1% y/y in May 2022 from April and slightly slower than market expectations of 2.2% due to the effects of lockdowns. Shanghai and Beijing reimposed some Covid-related restrictions just days after loosening them as the virus appeared to be under control.

Korean won – The won depreciated 0.92% to 1,269. South Korea posted a current account deficit of US$0.08 billion in April for its first time in two years, following a revised US$7.06 billion surplus in March as the trade surplus narrowed and dividend payment to investors

Australian dollar – The Aussie dollar sank 0.56% to 0.706. Australia's new home sales fell 5.5% m/m in May 2022, much lower than a 1.2% contraction in the previous month. The cost of new houses will be further pushed up by rising lending rates and exacerbated by increasing input costs.

Commodities Highlights

Crude oil – Oil prices fell as a more aggressive Fed’s rate hike cycle looms and the reimposition of China’s Covid-related restrictions. Brent shed 0.86% to US$122 per barrel while WTI dropped 0.49% to US$121 per barrel.

Gold – The gold price soared 1.28% to US$1,871/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit was on the downside again as it edged down 0.19% to 4.402, testing the resistance level of 4.40 and was traded within the range of 4.403 and 4.392.

KLSE – The local bourse’s FBM KLCI was traded lower by 1.04% to 1,494, dragged by the healthcare and energy sectors. Detailed transactions showed that foreign investors remained net sellers with RM183.1mil, offset by net buying of RM91.4mil (local retailers) and RM91.7mil (local institutions).

Fixed income – The local bond space was filled with caution as the 3-year and 5-year yields remained at 3.470% and 3.750%, respectively, while the 7-year was +0.5bps to 4.145%, and 10-year +1.5bps to 4.240%.

Rates – The IRS yield for (3Y) was +1.0bps to 3.715%, (5Y) -2.0bps to 3.900%, (7Y) +1.5bps to 4.055%, and (10Y) remained at 4.175%.

Against major currencies – The ringgit was weaker against the GBP, JPY, IDR, and VND but had the upper hand against the EUR, AUD, CNY, SGD, THB and PHP.

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.3900 and 4.3950 while our resistance is pinned at 4.4200 and 4.4250.

Source: AmInvest Research - 13 Jun 2022