• ECB joins chorus of tightening global central banks while BoJ remains outlier of holding easy monetary policy

Global Highlights

Dollar Index – The dollar fell 0.16% to 106.91, its weakest level in two weeks. According to data, new unemployment benefit claims rose to 251K during last week, the highest level since November 2021 and much higher than the market forecast of 240K, and an initial sign of an easing labour market.

US equities & sovereign bonds – Wall Street was slightly higher due to betterthan-expected earnings as the Dow Jones inched higher by 0.51% to 32,037, S&P 500 rose 0.99% to 3,999 and Nasdaq climbed 1.36% to 12,060. The UST10Y benchmark yield fell 15.2bps to 2.875%, while the UST2Y dropped 14.2bps to 3.085%, widening the inverted differential between the two to 21bps.

Euro – The euro rose 0.49% to 1.023, mostly propelled by the higher-than expected rate hike by the ECB. The central bank raised its interest rate by 50bps, raising its main refinancing rate to 0.50%, the marginal lending facility to 0.75%, and deposit facility to 0.00%, and marking this as its first key rate increase in 11 years. The central bank also mentioned that there will be more policy normalisation during the upcoming meetings.

British pound – The pound gained 0.18% to 1.200, retreating from its 2-year low. The government’s budget deficit is on course to reach above £100 billion this year as public sector net borrowing rose to £22.9 billion in June, £4.1 billion more than the previous year and the second highest June borrowing since 1993, mainly pushed up by the runaway inflation.

Japanese yen – The yen strengthened sharply by 0.62% to 137.36 following the BoJ’s decision to maintain its low interest rate of -0.1%, despite the global shift towards policy tightening. The central bank also cut its 2022 growth forecast to 2.4% from 2.9% and revised its 2022 inflation expectation to 2.3% from 1.9%, higher than its target of 2.0%. The weaker growth was due to a slowdown in global economy and a prolonged Ukraine-Russia war while the elevated inflation was due to surging energy, foods, and durable goods prices.

Chinese yuan – The yuan depreciated by 0.16% to 6.767. Nonetheless, the currency remained under pressure due to the stringent zero-Covid policy fears and the worsening property sector crisis in China as more homebuyers stopped their mortgage payments as a sign of protests due to delayed property constructions.

Korean won – The won gained appreciated 0.38% to 1,308, near the lowest level since 2009. South Korea’s the National Pension Service (NPS), which is also the world’s third largest pension fund, made net purchases of about US$10 billion of foreign bonds and stocks this year up till May 2022, according to data by central bank. This may pressure its own currency and became one of the worst performer against the USD.

Australian dollar – The Australian dollar surged 0.67% to 0.693, moving away from its recent dip. On the pandemic front, Australia is facing a resurgence of Covid cases as it reported one of its highest daily death tolls due to the contagious Omicron variant. Nevertheless, the authorities opted not to return to the previous strict pandemic measures to prevent a hit in its economy.

Commodities Highlights

Crude oil – Oil prices tumbled again with Brent sinking 2.86% to US$103 per barrel and WTI losing 1.88% to US$102 per barrel as demand worries persisted induced by the recession worries while supply concerns are eased with the resumption of oil supply from Libya and Russia’s gas flows to Europe.

Gold – The gold price rose 1.31% to US$1,719/oz as economic concerns drive its safe-haven lure.

Malaysia Highlights

Malaysian ringgit – The ringgit depreciated 0.14% to 4.458. The government's announced austerity measures won't have an impact on authorised development projects. Minister in the Prime Minister's Department (Economy) emphasised the significance of ongoing development in driving the economy and guaranteeing Malaysia's ability to meet its 5.3% to 6.3% economic growth target for this year. 30 projects totalling RM100 million have been recognised to date.

KLSE – The FBM KLCI climbed 0.93% to 1,450. Detailed transactions showed that local institutions and foreign investors were net buyers with RM0.8mil and RM21.6mil flow, respectively, offset by local retailers’ net selling position of RM22.5mil.

Rates – The IRS yield for the (3Y) +0.5bps to 3.500%, (5Y) +1.0bps to 3.635%, (7Y) +0.5bps to 3.730%, and (10Y) remained at 3.800%

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

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 4.620.

Source: AmInvest Research - 22 Jul 2022