• The Fed raises its interest rate by 75bps

• Economic Highlight: The US Federal Reserve and Malaysia drops in IMD’s 2022 World Competitiveness Rankings

Global Highlights

Dollar Index – The dollar fell 0.34% from its 20-year high to 105.16 following the Fed’s decision raising its interest rate by 75bps to a range of 1.50% - 1.75%, fulfilling market’s expectation and bolstering its position in fighting inflation. There are also possibilities that we may see the same rate hike in the upcoming meetings but not to be mistaken as a common move. At the same time, the Fed’s Chair Jerome Powell stated that the “soft landing” notion, where the Fed fights inflation without causing a recession is still in play.

US equities & sovereign bonds – Wall Street seemed to be pleased with the Fed’s bigger rate hike move as major indices rebounded amidst choppy trading session. The Dow Jones climbed 1.00% to 30,669, the S&P500 rose 1.46% to 3,790, while the Nasdaq jumped 2.50% to 11,099. The UST 10-year benchmark yield added 0.7bps to 3.583% while the UST2-year rose 7.3bps to 3.427%, making the yield differential to be widened slight to 4.6bps, up from 0.6bps in the previous session.

Euro – The euro traded higher by 0.27% to 1.044 following the ECB’s emergency meeting on 15th June 2022. The central bank decided to avoid debt crisis in the region due to rising borrowing costs by applying flexibility in reinvesting redemption in the PEPP portfolio. The move came in after the surging spread of bonds’ yields between its country members and the unveil of ECB’s rate hike cycle that will start in July. On the data front, April’s industrial production in the Euro Area rose 0.4% on monthly basis but fell by 2.00% on annual changes.

British pound – The British pound reaped the benefit as well as it climbed 1.53% to trade around 1.218 ahead of the BoE meeting that is due today and is expected to announce a 25bps interest rate increase. Although, a more aggressive move by the Fed could push the BoE to announce fatter rate hike.

Japanese yen – The yen strengthened sharply by 1.20% to 133.84 after multiple sessions of free falling. The BoJ announced another round of yield defending on 16th and 17th June and the upper market cap for Japanese Government Bond (JGB) 10-year yield is held at 25 basis points. On a side note, the Japanese government called out on the BoJ to take “necessary measures appropriately” following the sharp slide in yen and rising cost of living.

Chinese yuan – The yuan strengthened 0.39% to 6.715 amidst heavy positive data released in China. Annual industrial production grew by 0.7% y/y, beating market expectation of 0.7% contraction, while the retail sales dropped only by 6.7% y/y compared to market forecast of 7.1%. The unemployment rate dipped to 5.9% in May from 6.1% it hit in April 2022.

Korean won – The won weakened 0.31% to 1,290. South Korea’s transport ministry and unionised truckers had come into a tentative agreement on minimum pay guarantees and ending the nationwide strike that disrupted industries. On the data front, the final figure showed that the South Korea’s economy grew 3.0% y/y in first quarter of 2022, slightly lower than the initial estimates of 3.1%.

Australian dollar – The commodity linked currency Aussie dollar went up by 1.92% to 0.700 amidst shaking dollar. Meanwhile, Australia authorities suspended electricity market and taking over the national power grid amid energy crisis and a series of supply shocks and blackouts.

Commodities Highlights

Crude oil – Following Fed’s movement rising its interest rate by 75bps, oil prices sank as the risks of falling demand towards oil are rising. Brent price dropped 2.20% to US$118 per barrel while the WTI tumbled 3.04% to US$115 per barrel.

Gold – The gold price rose 1.40% to US$1,834/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit gained some strength as it appreciated 0.16% to trade around 4.414 and traded within the range of 4.4225 and 4.4135. Malaysia eased ban on chicken exports partly and this may provide some relief for Singapore’s food industry as data showed that it bought over 45 million birds in 2021.

KLSE – The local bourse’s FBM KLCI fell 1.50% to 1,459, weight by the losses in plantation, technology, and healthcare sectors. Detailed transactions showed that the foreign investors remained the net sellers with RM146.3mil position, while the local institutions and retailers were the net buyers with RM82.4 and RM63.9mil, respectively.

Rates – The IRS yield for (3Y) maintained at 3.820%, (5Y) -0.2bps to 4.025%, (7Y) -2.4bps to 4.168%, and (10Y) -4.5bps to at 4.255%

Against major currencies – The ringgit held its ground against GBP, SGD, THB, IDR, and PHP but lost against EUR, AUD, JPY, CNY, 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 - 13 Jun 2022