• Greenback falls for 4th straight session ahead of FOMC meeting

Global Highlights

Dollar Index – The Dollar Index started the week on weaker footing as it fell 0.23% to 106.48, the lowest level since early this month. Ahead of the Fed meeting which will conclude on Wednesday, the central bank is expected to raise its rate by 75bps, in line with our view. The main concern here is that the effort to rein in inflation could tip the world’s largest economy into a sharp recession.

US equities & sovereign bonds – Wall Street closed mixed amidst a busy results week with the Dow Jones gaining 0.28% to 31,990, S&P 500 inching higher by 0.13% to 3,967, and Nasdaq declining 0.43% to 11,783. The benchmark UST10Y yield added 4.6bps to 2.796% while the UST2Y was up 4.6bps to 3.016%, widening the inverted differential to 22bps.

Euro – The euro inched 0.07% higher to 1.022. With Europe's largest economy on the verge of recession due to high energy prices, impending gas shortages and rising interest rates, the closely watched German Business Climate Index from the Ifo Institute fell to 88.6 in July, its lowest level in more than two years. The reading for June was slightly revised downward to 92.2.

British pound – The pound climbed 0.37% to 1.204, propelled by the aggressive tightening from the BoE and solid reading on the recent PMI data compared to its peers. Nonetheless, the CBI Industrial Trends Survey output balance dropped to +6 for July from +19 in April, its lowest since the three months to April 2021 but still above its long-run average of +2. It was weighed down by declining output and new orders amid ongoing cost inflation, supply chain bottleneck and overall economic weakness.

Japanese yen – The yen weakened 0.42% to 136.69. Japan’s government adjusted its economic growth forecast to 2.0% for this fiscal year, a sharp decline from the previous 3.2% growth forecast in January, taking cues from slowing global growth due to the Ukraine-Russia conflict, China’s zero-Covid policy, and also from a dampened local domestic spending.

Chinese yuan – The yuan appreciated marginally by 0.01% to 6.751, the third consecutive day of its strengthening trend. In an effort to help property developers overcome crippling debt crisis, China will establish a real estate fund with a war chest of up to 300 billion yuan (US$44 billion) to boost confidence in the industry following the mortgage boycott by the homebuyers.

Korean won – The won weakened slightly by 0.03% to 1,313 and remained near its 13-year low. According to the finance minister, unless there is another spike in commodities price over the upcoming months, Korea’s inflation is expected to hit its peak by September or October this year.

Australian dollar – The Aussie dollar gained 0.38% to 0.696. On the pandemic front, rising Covid-19 cases have given rise to worries on constrained local economic production. According to official data, 5,450 Australians were hospitalised on Monday with Covid-19, setting a new record in 2022.

Commodities Highlights

Crude oil – WTI crude surged 2.11% to US$96 per barrel while Brent benchmark soared 1.89% to US$105 per barrel as the trading session oscillated between supply concerns and expectations that a rise in US interest rates would affect fuel consumption. However, prices were supported by a slightly weaker US dollar and risk-on sentiment.

Gold – Gold price pulled back as it lost 0.45% to US$1,720/oz due to prospects of tighter US monetary policy during the FOMC meeting this week.

Malaysia Highlights

Malaysian ringgit – The ringgit appreciated only slightly by 0.01% to 4.453 and traded within the range of 4.456 and 4.450. Malaysia's Leading Index increased by 0.4% m/m in May 2022, signalling positive development in the economy.

KLSE – The FBM KLCI rose 0.23% to 1,469 with gainers were seen in financial services and REIT. Detailed transactions showed that the foreign investors remained buyers with RM25.1mil positions offset by the local selling with RM11.5mil from institutions and RM13.6mil from retailers.

Rates – The IRS yield for the (3Y) was -1.50bps to 3.425%, (5Y) -3.0bps to 3.535%, (7Y) -4.0bps to 3.615%, and (10Y) -2.5bps to at 3.720%.

Against major currencies – The ringgit was weaker against the EUR, GBP, AUD, CNY, SGD, THB, IDR, and PHP, but stronger against only JPY 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 - 26 Jul 2022