• Dollar Index Breaches 108 Level
• Economic Update: Domestic output and demand remain vibrant

Global Highlights

Dollar Index – The greenback continued to benefit from the Fed’s hawkishness as it rose 0.95% to trade around 108.02. The US labour market remained tight as non-farm payrolls increased by 372K in June, much stronger than the market forecast of 268K, according to a report released on Friday. In addition, the unemployment rate remained at 3.6% for the third consecutive month.

US equities & sovereign bonds – Wall Street turned red as the Dow Jones fell 0.52% to 31,174, the S&P 500 lost 1.15% to 3,854 while the Nasdaq tumbled 2.26% to 11,373. The UST10Y benchmark yield lost 8.7bps to close at 2.993%, below 3.00% level, while the UST2Y fell 3.3bps to 3.072%, widening the yield inversion of 10/2’ differentials to 7.9bps.

Euro – The euro sank 1.42% to 1.004 and almost hitting the parity level with the US dollar on worries of energy crisis in the region which could trigger an economic recession. The Nord Stream 1 pipeline, which carries Russian gas to Germany, was shut down temporarily for annual maintenance although the market is expecting that it will be extended due to the Ukraine-Russia war and sanctions imposed.

British pound – The pound lost 1.17% to 1.189. Economic uncertainty persists since the political chaos with 10 new candidates launching their campaigns to be the next PM, which is set to be in place by 5 September 2022.

Japanese yen – The yen weakened 0.98% to 137.44. Cabinet Office data reported that May saw a 5.6% y/y decline in core machinery orders, a highly volatile data series regarded as an indicator of capital spending, marking the first decline in three months due to rising energy and raw material prices.

Chinese yuan – The yuan weakened 0.36% to 6.719. China's auto sales increased for the first time in four months in June, rising 23.8% y/y due to tax reductions and financial incentives granted by the government as an effort to revitalise the pandemic ravaged economy.

Korean won – The won depreciated 0.29% to 1,304, reaching its 13-year weakest level. Measures amounting to 810bil won have been announced to ease rising living costs, including the removal of tariffs on some food imports. The central bank BoK is expected to hike interest rates by 50bps to 2.25% later this week, the largest hike since 1999 when it adopted interest rate as primary policy mean.

Australian dollar – The Australian dollar dropped further by 1.79% to a new 2- year low at 0.673. A new subsidiary agreement between Australia and Laos was signed to improved transport connectivity, cross-border trade and logistics along an east-west corridor in northern Laos. Australia is expected to provide US$10 million in support.

Commodities Highlights

Crude oil – The fuel demand outlook is being challenged by the discovery of a highly transmissible Omicron subvariant in China while concerns over tight supplies remained in global market as oil prices were relatively stable. Brent rose marginally 0.07% to US$107 per barrel while WTI dropped 0.67% to US$104 per barrel

Gold – A surging dollar is dampening gold bullion as its price fell 0.49% to US$1,734/oz.

Malaysia Highlights

Malaysian ringgit – Amidst the Hari Raya Haji holiday, the ringgit appreciated by 0.03% to 4.425 and traded within the range of 4.4257 and 4.4202. Malaysia’s wholesale and retail trade sales hit a new high in May (since 2013) of RM129.8 billion with a growth of 19.9% y/y. The IPI showed a rise at 4.1% in May y/y, mainly attributed to the manufacturing and electricity sectors.

KLSE – The FBM KLCI was unchanged at 1,426 on Monday after a better performance last Friday as it inched higher by 0.50% from 1,419. Detailed transactions showed that foreign investors were net buyers with RM11.4mil flow, offset by selling positions from local institutions and retailers with RM4.04mil and RM7.35mil flow, respectively.

Fixed income – On Friday, most benchmark yields were closed mixed with 3- year +2.0bps to 3.480%, 5-year -1.0bps to 3.830%, 10-year -1.0bps to 4.140%, while the 7-year remained unchanged at 4.070%.

Rates – The IRS yield for (3Y) was at 3.500%, (5Y) at 3.675%, (7Y) at 3.780%, and (10Y) at 3.895%.

Against major currencies – The ringgit had the upper hand against the EUR, AUD, JPY, CNY, THB, IDR and PHP but lost against GBP, SGD, and VND.

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.4100 and 4.4150 while our resistance is pinned at 4.4500 and 4.4550.

Source: AmInvest Research - 12 Jul 2022