• US and EA PMIs signal recession knocking at the door

• Economic Update: Malaysia inflation

Global Highlights

Dollar Index – The dollar fell by 0.17% to 106.73, marking the second consecutive day of losing streak as a preliminary PMI report showed slowing services output. The S&P Global Composite PMI has dropped to a contraction level at 47.5 in July from 52.3 in June, the first in two years, due to a sharp fall in the services PMI from 52.7 to 47. Meanwhile, the manufacturing PMI remained healthy at 52.3 in June from 52.7.

US equities & sovereign bonds – Wall Street turned red as the Dow dipped 0.43% to 31,899, the S&P 500 lost 0.93% to 3,962 while the Nasdaq dropped 1.87% to 11,834 due to weaker-than-expected earnings results. The benchmark UST10Y yield shed 12.4bps to 2.750%, signalling intensifying recession worries. On the other hand, the UST2Y yield fell 11.5bps to 2.970%, resulting in the differential of 10/2 of -21.9bps.

Euro – The euro slipped 0.17% to 1.021. The S&P’s Composite PMI fell to 49.4 in July from 52.0 in the previous month, and much lower than the market’s expectation of 51. It was weighed down by the shrinkage in manufacturing output (49.6 in June vs. 52.1 in May) and a much slower growth in services (50.6 in June vs. 53 in May).

British pound – The pound eased 0.03% to 1.200 as the economic data in the UK came in much better than that of the US and Eurozone. The S&P Global/CIPS UK Composite PMI remained in the growth zone at 52.8 in July , sliding from 53.7 in the prior month albeit posting the slowest growth since February 2021. Also, surging inflation and economic volatility hit consumer sentiment as the GFK Consumer Confidence indicator reading remained at a record low of -41.

Japanese yen – The yen strengthened 0.90% to 136.12. Japan’s overall prices rose 2.4% in June y/y while core CPI climbed 2.2% in June y/y (cons: 2.2%), driven mainly by cost-push factors. Japan’s Composite PMI slipped 50.6, slower than a growth of 53 in the previous month.

Chinese yuan – The yuan appreciated 0.23% to 6.752. Following a regular cabinet meeting, authorities remained committed to propelling local economic recovery while prioritizing stable employment and prices as the stringent zero-Covid policy is constraining growth. Through funding for infrastructure, authorities have rolled out 800 billion yuan in new credit quotas and 300 billion yuan in issuing bonds.

Korean won – The won weakened 0.40% to 1,313, remaining near its 13-year low level. Producer prices in South Korea rose 9.9% y/y in June 2022, the highest producer inflation since October 2008.

Australian dollar – The Aussie dollar lost 0.07% to 0.693. The S&P Global Composite PMI reading fell to 50.6 in July from 52.6 in June. While business confidence continued to be positive, the rising wages and input prices were the main drivers of elevated input costs.

Commodities Highlights

Crude oil – WTI crude fell 1.71% to US$94.70 per barrel while Brent crude futures slipped 0.64% to US$103.20 per barrel. US gasoline demand had fallen by about 8% from a year earlier during the peak summer driving season, impacted by record fuel prices, pushing the WTI lower. Meanwhile, the Brent price was supported by strong demand in Asia.

Gold – Gold gained 0.46% to US$1,726/oz, second price gain in a row after dropping to its lowest level since March 2021.

Malaysia Highlights

Malaysian ringgit – The ringgit appreciated 0.12% to 4.453 and traded within the range of 4.457 and 4.451. Malaysia’s CPI increased by 3.4% in June y/y, compared to May’s value of 2.8% y/y, signalling cost-push factors continuing to permeate Malaysia’s economy.

KLSE – The FBM KLCI climbed 1.07% to 1,466. Detailed transactions showed that foreign investors were the net buyers with RM72.8mil, while being offset by the net selling position from local institutions (RM14.0mil) and local retailers (RM58.8mil).

Fixed income – The local bond market saw higher price traded as the 5-year yield -4.0bps to 3.720%, 7-year -3.0bps to 3.980%, and 10-year -5.0bps to 4.020%. The 3-year yield maintained at 3.560%.

Rates – The IRS yield for the (3Y) was -6.0bps to 3.440%, (5Y) -7.0bps to 3.565%, (7Y) -7.5bps to 3.655%, and (10Y) -5.5bps to at 3.745%.

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

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 - 25 Jul 2022