• US Fed’s Chair signals recession is a possibility

• Economic Highlight: Prices in the UK continued to accelerate.

Global Highlights

Dollar Index – The dollar went down 0.23% to 104.20 following the US Fed’s Chair remark during his testimony. He indicated that the central bank is now “strongly committed” in bringing the inflation and the unintended consequence of recession is a possibility while doing so. Officials will be looking for “compelling evidence” that inflation is going down to 2.0% before any slowdown in interest rate hike happen. This prompted investors to seek for safe haven such as the yen and franc. The Swiss franc appreciated 0.51% to 0.961.

US equities & sovereign bonds – Amidst risk-off sentiment, Wall Street pared some previous gains as the Dow Jones fell 0.15% to 30,483, the S&P500 lost 0.13% to close around 3,760, and the tech heavyweight Nasdaq declined 0.15% to 11,053. The UST10Y benchmark yield went down 11.9bps to 3.156% after Fed’s Chair hint of recession. The UST2Y yield went down 14.0bps to 3.056%, causing the yield differential between the 10/2 to widen to 10.0bps.

Euro – The euro gained 0.31% to 1.057, approaching its three-week high. Report showed that the consumer confidence in the eurozone fell to -23.6 in June 2022, down from -21.1 in the previous month, and just few points away from the lowest level on record when the pandemic hit in April 2020. The deteriorating consumer confidence is due to falling consumers’ purchasing power and worries over indirect effect of Russian invasion in Ukraine.

British pound – The pound slightly eased by 0.09% to 1.227 after the release of inflation report. Data indicated that the annual inflation rate rose to 9.1% y/y, slightly higher than 9.0% in the previous month and the highest level since 1982. The increase was driven by the higher costs of housing & utilities (19.4% y/y) and transport (13.8%). This will put pressure on the BoE to push inflation higher in cooling the inflation down.

Japanese yen – The yen appreciated slightly by 0.23% to 136.26 after hitting the weakest level since 1998. In April meeting minutes, some of BoJ’s officials were concerned over the excessive yen volatility as it could disrupt businesses. But others argued the need to maintain the ultra-accommodative policy in supporting still-fragile economy, and no need to raise interest rates to curb yen’s weakness.

Chinese yuan – The yuan weakened 0.19% to 6.702 as China mainland’s stock markets were down from its recent three-month high. Risk-off sentiment permeated in the market amidst extreme weather in certain regions, disrupting economic recovery post Covid lockdowns.

Korean won – The won sank 0.32% to 1,298, a level we have not seen since July 2009 as concerns on aggressive global interest rate hike could trigger slowing growth.

Australian dollar – The Aussie dollar went down by 0.63% to 0.693. On the data front, the Westpac-Melbourne Institute Leading Index declined by 0.06% y/y during May 2022, the same contraction with April’s reading.

Commodities Highlights

Crude oil – Worries over slower oil demand induced by the US rising rates which ultimately lead to economic recession outweighed oil prices as the Brent dropped 2.54% to US$111.7 per barrel while WTI tumbled 4.03% to US$106.2 per barrel.

Gold – The gold price gained 0.26% to US$1,837/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit depreciated 0.22% to 4.406. The Malaysia PM announced a cash aid injection as part of supplementary Bantuan Keluarga Malaysia (BKM) funds to help the needy combatting rising prices, following the withdrawal of the subsidy for chicken and eggs. Also, the BNM international reserves as of 15th June was up to US$109.2 billion, sufficient to cover 5.5 months of imports of goods and services and is 1.1 times the total short-term external debt.

KLSE – The FBM KLCI lost 1.84% to 1,431 as all sectors were in the negative territory. Top losers were seen in the plantation, healthcare, and energy. Detailed transactions showed that both local retailers were the net buyers with RM146.1mil and RM43.4mil, respectively, while the foreign investors were the net sellers with RM189.5mil flow.

Rates – The IRS yield for (3Y) 3.5bps to 3.725%, (5Y) -9.0bps to 3.850%, (7Y) - 5.5bps to 4.000%, and (10Y) -10.0bps to at 4.100%

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.4000 and 4.4100 while our resistance is pinned at 4.4200 and 4.4300.

Source: AmInvest Research - 23 Jun 2022