• Risk-on sentiment recovered but recession worries remain

• Economic Highlights: Malaysia’s overall inflation in May 2022 stood at 2.8% y/y.

Global Highlights

Dollar Index – The dollar ended the week on weaker note as it fell by 0.24% to 104.19. The recent inflation figure has forced the Fed to apply the brake harder and may induce recession.

On the data front, the University of Michigan consumer sentiment fell to 50.0 in June 2022, an all-time low, from 58.4 in the previous month. This signals risk of further deterioration in consumer spending, driven by the multi-year high inflation and rising loan costs. However, the survey’s reading on inflation expectation for the year ahead remained at 5.4% while five-year inflation expectation fell to 3.1% from the preliminary of 3.3%.

US equities & sovereign bonds – Wall Street surged across the board during the last hour of trading as the Dow Jones surged 2.68% to 31,501, S&P500 climbed 3.06% to 3,912 while the Nasdaq soared 3.34% to 11,608. The UST10Y added 4.3bps to 3.130% while the UST2Y added 4.9bps to 3.063%, making the differentials

Euro – The euro rose slightly by 0.29% to 1.055, making tepid recovery from previous losses. The Ifo Business Climate indicator for Germany dropped to 92.3 in June from 93 in the previous month, and missing market expectations of 92.9. According to the survey, the threat of gas shortages is a great concern for German businesses.

British pound – The pound went up slightly by 0.07% to 1.227 as the currency outlook remained uncertain due to the recent 40-year high inflation, putting pressure on the BoE to hike its rate despite the recession risks. Retail sales in the UK contracted by 4.7% y/y during May 2022, the second straight month of decline (cons.: -4.5% y/y). On monthly basis, the retail sales declined 0.5% m/m, down from 0.4% growth. Also, the GfK Consumer Confidence reading in fell to -41 in June from -40 in May as it set another new record low on record for the second consecutive months.

Japanese yen – The yen depreciated 0.21% to 135.23 following the release of Japan’s consumer price data. Report showed that inflation rate for May was unchanged at more than 7-year high of 2.5% y/y, and in line with market forecast. Food inflation climbed 4.1% y/y while the cost of fuel, light and water charges rose by 14.4%.

Chinese yuan – The yuan appreciated 0.13% to 6.690 as the divergent between easing policy by PBoC and global rising interest rates widen. The PBoC also announced that it will create yuan reserve pool with the Bank for International Settlements (BIS), in cooperation with contribution from five other central banks; Indonesia, Malaysia, Hong Kong, Singapore and Chile.

Korean won – The won sharply appreciated by 0.22% to 1,299 but remained near its weakest level since July 2009.

Australian dollar – The Aussie dollar gained 0.70% to 0.695. Despite the need for higher interest rate, RBA Governor Philip Lowe believes Australian economy is still strong and does not expect that the country to fall into recession while fighting the inflation.

Commodities Highlights

Crude oil – Global oil prices recovered on Friday but posted second weekly decline. Brent jumped 2.79% to US$113 per barrel while WTI surged 3.21% to US$107 per barrel.

Gold – The gold price rose 0.23% to US$1,826/oz

Malaysia Highlights

Malaysian ringgit – The ringgit appreciated slightly by 0.07% to 4.403. Malaysia's core inflation has surged to an almost five-year high as domestic demand strengthens. The headline inflation rose to 2.8 per cent year-on-year in May, the fastest gain since July 2017.

KLSE – The FBM KLCI gained by 0.39% to 1,437. Detailed transactions showed that local retailers were net sellers of RM26.7 mil. Local institutions and foreign investors were net buyer with RM20.3mil and RM6.5mil flow, respectively.

Fixed income – The MGS for 3-year -3.0bps to 3.470%, 5-year -2.5bps to 3.900%, 7-year -7.0bps to 4.160%, and 10-year -5.5bps to 4.225%.

Rates – The IRS yield for (3Y) +1.0bps to 3.615%, (5Y) +1.5bps to 3.790%, (7Y) -0.5bps to 3.890%, and (10Y) -4.0bps to at 3.960%

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.3880 and 4.3920 while our resistance is pinned at 4.4150 and 4.4200.

Source: AmInvest Research - 27 Jun 2022