• The Fed increases interest rates by 75bps

Global Highlights

Dollar Index – The dollar lost 0.69% to 106.452, responding to the Federal Reserve increased its interest rate on Wednesday by 75bps, to a range of 2.25%to 2.50%. The Fed has raised its policy rate by 225 basis points overall this year, including a 75-basis-point hike last month and smaller increases in May and March.

US equities & sovereign bonds – Wall Street gained where Dow Jones up 1.37% to 32,198, S&P 500 up 2.62% to 4,024 and the tech heavyweight Nasdaq up 4.06% to 12,032. The UST10Y benchmark yield was 2.785%, while the UST2Y was at 2.998%, where the differential between these securities were – 21.30bps.

Euro – The euro gained 0.82 to 1.020 after dollar weakened. Russia has cut gas supplies through the Nord Stream 1 pipeline to a fifth of its total capacity. Europe initially received around 45% of its gas from Russia. The most affected by this move will be Germany, as the country’s energy consumption is highly dependent on Russia.

British pound – The pound also gained by 1.08% to 1.216. The British Retail Consortium (BRC) reported that prices in British stores and supermarkets rose by 4.4% in the year leading up to July, the highest increase since these records began in 2005. This increase was due to rising food and transportation expenses. According to the BRC data, food prices surged by 7.0% in the year to July after rising by 5.6% in June.

Japanese yen – The yen up 0.25% to 136.570. Due to an outbreak of Covid- 19, Toyota Motor Corp has stopped one production line during the night shift at its Takaoka factory in central Japan. The partial suspension would reduce vehicle output from the two shifts by around 650 units.

Chinese yuan – The yuan up 0.07% to 6.759. China’s industrial firms profit rebounded by 0.8% in June, after declining in April and May due to the zeroCovid policy implemented by the government that hinders businesses from operate at full capacity. The real estate market continues to make headlines, where S&P Global Ratings is expecting China’s property sales to worsen with a drop by about 30% amidst the mortgage boycott issue.

Korean won – The won depreciated 0.40% to 1,313.32. A recent survey by the BoK showed that South Koreans' expectations for the country's economy and standard of living dropped to 86.0 in July from 96.4 in June. This was the largest decline since March 2020 and the lowest level since September 2020

Australian dollar – The Australian gained 0.76% to 0.699. Australian prices were up 6.1% in the June quarter, from 5.1% in the previous quarter, signalling a 21-year high which has yet to peak. Consensus now is expecting a 50bps rate hike by the RBA next week to cool price pressure.

Commodities Highlights

Crude oil – Brent up by 2.13% to $106.62 per barrel and WTI also up by 2.40% to $97.26 per barrel. The rebound in the oil price was in response to the Fed’s interest rates increases. But oil prices have been trading lower since early July, reflecting a pessimistic outlook in the market.

Gold – Gold also increased 0.98% to US$1,735/oz, but still continuing its downward trend due to interest rates hike made by the Fed and investors continued to flee into the US dollar.

Malaysia Highlights

Malaysian ringgit – The ringgit was on the downside as it lost 0.01% to 4.458 despite weaker dollar and stronger yuan. Malaysia’s PPI for June receded to 10.9% from 11.2% in May, with all sectors marking a double-digit rise, except the utility sectors. On the fiscal policy, the federal government’s total expenditure for the first quarter stood at RM86.7 billion.

Fixed Income – The MGS 3Y was up by 1.0bps to 3.53%, 5Y remained at 3.74%, 7Y up +1.0bps to 3.95%, and 10Y up 1.0bps to 3.98%.

KLSE – The FBM KLCI was up by 0.48% to 1,471. Detailed transactions showed that local institutions and local retails were net seller of RM36.9mil and RM13.6. Foreign investors were net buyer of RM50.5mil.

Rates – The IRS yield for the (3Y) was +1.50bps to 3.430%, (5Y) +1.20bps to 3.542%, (7Y) +2.20bps to 3.652%, and (10Y) remained at 3.750%

Against major currencies – The ringgit was weaker against the GBP, AUD, JPY, CNY, and THB, but stronger against the EUR, SGD, IDR, PHP 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 - 28 Jul 2022