• Greenback falls for the third straight day on the prospect of larger ECB rate hike

Global Highlights

Dollar Index – The dollar eased for the third consecutive day by 0.64% to 106.68. On the data front, the US building permits fell to 1.69 million in June 2022, the lowest level since September 2021 (cons. 1.65 million). This signals that property market in the US will see slowing supply amidst rising interest rates.

US equities & sovereign bonds – Wall Street was upbeat following better than expected earnings season as the Dow Jones rose 2.43% to 31,827, S&P500 climbed 2.76% to 3,937 while the Nasdaq surged 3.11% to 11,713. The UST10Y benchmark yield added 3.5bps to 3.021% while the UST2Y added 6.3bps to 3.237%, making the spread between 10/2 yields to widen at 21.6bps.

Euro – The euro gained 0.83% to 1.023. We expect ECB to raise rates by 25bps and probably even 50 bps for the first time since 2011. Inflation in June stood at 8.6%y/y, the highest on record and way above the 2% target. Much of the inflation comes from energy, food, alcohol, and tobacco.

British pound – The pound gained 0.35% to 1.200. Unemployment rate stood at 3.8% in the three months to the end of May, unchanged from the previous quarter but beaten the market consensus of 3.9%.

Japanese yen – The yen weakened slightly by 0.04% to 138.19. Amidst limited monetary policy space, the BoJ is poised to maintain its ultra-accommodative stance during its upcoming, resulting to the yen to be pressured further. The BoJ also has spent more than 16 trillion yen in June, protecting the targeted 0.25% ceiling on its 10-year government debt. The recent surging Covid cases may also support the BoJ’s accommodative view.

Chinese yuan – The yuan weakened 0.02% to 6.744. China’s portfolio of U.S. government debt in May dropped to $980.8 billion, hitting below $1 trillion for the first time in 12 years and down 9% y/y.

Korean won – The won strengthened 0.28% to 1,314. The last time the currency reached 1,300 level was during the AFC in 2008 – 2009.

Australian dollar – The Australian dollar surged 1.25% to 0.690. The RBA’s Deputy Governor stated that rising borrowing costs is expected to have a small impact on Australian households as savings had built up around A$260 billion in during the pandemic and most were ahead on their mortgage payments. However, more recent home buyers may still be vulnerable to interest rate hikes that may be set in the months ahead.

Commodities Highlights

Crude oil – Brent price rose 1.02% to US$107 a barrel while WTI crude rose 1.58% to US$104 per barrel as supply worries remain permeating the global oil market despite the recession possibilities.

Gold – The gold price declined 0.10% to US$1.708/oz, reflecting investors’ continued flight to the dollar safe haven.

Malaysia Highlights

Malaysian ringgit – The ringgit strengthened 0.09% to 4.450 and traded within the range of 4.459 and 4.448 Finance minister has reassured the public that the chance for Malaysia to face bankruptcies similar to Sri Lanka is very slim as Malaysia has stronger economic foundation and indicators.

KLSE – The FBM KLCI slid 0.05% to 1,429, dragged by the energy and utilities sector. Detailed transactions showed that the local institutions were the net sellers with RM19.3mil, offset by the net buying flow from local retailers (RM4.2mil) and foreign investors (RM15.1mil).

Fixed income – The local bond market erased previous gains as the benchmark yield for 3-year +2.0bps to 3.530%, 5-year +1.0bps to 3.730%, 7-year +3.0bps to 4.000%, and 10-year +4.0bps to 4.060%.

Rates – The IRS yield for the (3Y) was +6.0bps to 3.460%, (5Y) +7.0bps to 3.605%, (7Y) +7.2bps to 3.697%, and (10Y) +7.0bps to at 3.800%

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.450 and 4.470 while our resistance is pinned at 4.560 and 4.610.

Source: AmInvest Research - 20 Jul 2022