• Dollar dominates global market as risk-off sentiment heightens

• UK economy contracted for the second straight months

Global Highlights

Dollar Index – The greenback climbed 0.90% to 104.15, a fresh two decade high as global market was filled with risk aversion sentiment and the higher expectations of a steeper rate hike cycle by the Fed. On the data front, US consumer inflation expectations for the year ahead, jumped to 6.6% in May, up from 6.3% in April.

US equities & sovereign bonds – Wall Street was on the back footing for the fourth consecutive session. The Dow Jones fell 2.73% to 31,393, the S&P500 sank 2.91% to 3,901, while the Nasdaq tumbled 3.52% to 11,340. The UST10Y continued its rout as the benchmark yield climbed 11.4bps to 3.156% while the UST2Y yield also increased to 3.354%%, making the differential between the two to be narrower at 0.6bps. Money markets are now pricing two half point and one 75 basis-point hike by September.

Euro – The euro traded significantly lower by 1.05% at 1.041 amidst bullish dollars. The yield spread between Italian and German yields is considered to be a fear gauge in European market and it hit the highest level since May 2020 when the pandemic started. The market is worried about the highly indebted nations in EU as the prospect of ECB’s interest rate hike becomes higher.

British pound – Similarly, the pound dropped 1.47% to 1.213 following the release of monthly GDP data. Report showed that the GDP growth for the month of April 2022 contracted by 0.3% m/m after a 0.1% contraction in March and underwhelms the market forecast of 0.1% growth. Three out of four sectors recorded a decline and agriculture is the only one standing out.

Japanese yen – The yen weakened marginally by 0.01% to 134.42 amidst risk off sentiment in global markets. But the currency remained under pressure amidst widening bank central policy differential. Large manufacturers in Japan continued to expect the business environment in Japan deteriorate further as a survey index decreased 9.9% in the second quarter of 2022, down from a 7.6% decline in the previous quarter due to Ukraine-Russia crisis and weaker yen.

Chinese yuan – The yuan weakened 0.68% to 6.755, marking the sixth consecutive session of bearish trend. China started to reimpose Covid-19 restrictions after just weeks of easing in key cities. This raised concerns that the country will result to strict lockdown again to curb Covid-19 outbreak clusters.

Korean won – The won depreciated further by 1.24% to 1,284. Aside from the more aggressive Fed rate hike, concerns on seven-days long of truckers’ protests may have impact on the economy also weighed on the currency. At its most recent development, the strike has disrupted multiple industries including auto, steel, petrochemical and cement and costing about US$1.2 billion.

Australian dollar – The Aussie dollar tumbled 1.91% to 0.692 and the currency is facing further risks of weakening amidst China’s lockdown.

Commodities Highlights

Crude oil – Tight supplies notion is still permeating the global oil market as the Brent price rose 0.21% to US$122 per barrel while the WTI climbed 0.22% to US$120 per barrel.

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

Malaysia Highlights

Malaysian ringgit – The ringgit weakened 0.19% to 4.402 and traded within the range of 4.403 and 4.392. The World Bank stated that the impact of rising interest rate in the US will have minimal impact on Malaysia due to healthy international reserve, low US-dollar denominated debt and deep domestic institutional investor base.

KLSE – The local bourse’s FBM KLCI went down 1.04% to 1,494 dragged by technology, healthcare, and energy. Detailed transactions showed that the foreign investors remained the net sellers with RM163.2mil, offset by the RM99.9mil and RM63.3mil buying positions from local institutions and local retailers, respectively.

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 GBP, JPY, IDR, and VND but on the upper hand against EUR, AUD, CNY, SGD, THB, and PHP.

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 - 14 Jun 2022