• RBA raised interest rates by 50bps.

Global Highlights

Dollar Index – The dollar surged 1.33% to 106.535 reflecting pessimism among financial market participants on the economic and inflation outlook, and rising lending costs affecting businesses and households. US equities & sovereign bonds – Wall Street was mixed where Dow Jones fell 0.42% to 30,968, S&P 500 increased 0.16% to 3,831 and the tech heavyweight Nasdaq jumped 1.75% to 11.322. The UST10y/UST2y inverted to -1.30bps, where the UST10y was at 2.805% and UST2y to 2.818%.

Euro – The euro weakened 1.50% to 1.027, the lowest point in decades due to rising possibility of economic slowdown, surging prices and slower business activity. The ECB monetary policy will adjust its interest rates in the upcoming meeting in two weeks.

British pound – The pound weakened by 1.41% to 1.195, as British new car sales dropped 24% y/y in June, the lowest month in 26 years, due to supply shortages of components caused by the COVID-19 restrictions in China. Plus, the political upheaval is also taking a toll on the pound.

Japanese yen – The yen down by 0.17% to 135.850. Japan's services sector activity showed growth at the fastest pace since October 2013, with PMI increasing to 54.0 (sa).

Chinese yuan – The yuan lost 0.29% to 6.720. In efforts to spur infrastructure spending and revive the flagging economy, China plans to set up a state infrastructure investment fund worth 500 billion yuan (US$74.69 billion) which is expected to be set up in the 3Q.

Korean won – The won weakened 0.26% to 1,300.08. Korea experienced the highest inflation level in two decades hitting 6.0% in June 2022, and their foreign exchange reserves suffers the largest decline by US$9.43bil m/m since the ate 2008.

Australian dollar – The Aussie dollar sank by 0.92% to 0.680. As expected, the RBA raised interest rates by 50 basis points bringing it to 1.35%. As cost-push factors and growing wages will keep pressure on prices, we expect that the RBA will stick to its normalisation path. We foresee another 1-2 rate hikes, much depends on the data.

Commodities Highlights

Crude oil – Oil prices were down where Brent shed` 9.45% to US$102.77 per barrel and WTI down 8.24% to US$99.50 per barrel. The downward trend on commodity prices are reflecting slowing global economy due to a higher interest rates environment and continuous lockdown in China that will dampen demand.

Gold – The gold price weakened 2.40% to US$1,764.67/oz pressured by the higher expectation on aggressive monetary policy tightening, but still supported at the current level as investors are embracing for possibility of economic recession.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened 0.14% to 4.419 as waiting for the outcome of the OPR later. Stockpiles of palm oil are forecasted to continue rising up to 12.3% from the previous month as inventories hit the highest level in 7 months at the end of June.

We expect BNM to adjust the OPR by 50bps later today, bringing the interest rates to 2.50%, due to interest rates differential and demand-pull inflation.

KLSE – The FBM KLCI gained by 0.23% to 1,441. Detailed transactions showed that local institutions were net sellers of RM22.1 mil. Local retailers and foreign investors were net buyer of RM8.5 mil and RM13.6 mil respectively.

Fixed Income – The MGS benchmark for the 3-year remained at 3.500%, 5- year remained at 3.920%, 7-year up 2.0bps to 4.160%, and 10-year down 1.0bps to 4.200%.

Rates – The IRS yield for (3Y) was 2.5bps to 3.630%, (5Y) 5.00bps to 3.805%, (7Y) -2.50bps to 3.890%, and (10Y) 5.0bps to at 4.030%

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.4100 and 4.4200 while our resistance is pinned at 4.4250 and 4.4250.

Source: AmInvest Research - 6 Jul 2022