• US economy contracts in the second quarter of 2022

Global Highlights

Dollar Index – The greenback fell 0.09% to 106.35. According to data, US GDP shrank 0.9% in 2Q driven by many factors, including decreases in inventories, residential and non-residential investments, and government spending. This followed the 1.6% decline in GDP seen in 1Q1 with fears of a recession still looming.

US equities & sovereign bonds – Wall Street traded higher as the Dow Jones surged 1.03% to 32,530, the S&P 500 rallied 1.21% to 4,072 while the Nasdaq soared 1.08% to 12,163. The UST10Y benchmark yield fell 10.9bps to 2.676%% while the UST2Y yield dropped 13.6bps to 2.862% making the interest rate differential between the two at 18.6bps. This marked the 19th straight session of yield inversion.

Euro – The euro eased slightly by 0.03% to 1.020. According to a European Commission report, the economic sentiment indicator fell to 99 in July 2022 from 103.5 in June and below the market forecast of 102, marking the 5th straight month of decline and underpinning worries surrounding a prolonged Russia’s invasion and energy crisis, combined with rising interest rates. Also, the final figure for consumer confidence was at a record low of -27 in July, from -23.8 in June,

British pound – The pound inched higher by 0.18% to 1.218, still above the 2- year low it hit in mid-July. UK car production rose 5.6% y/y in June 2022 after a jump of 13.3% in May and amid signs that supply chain shortages are beginning to ease.

Japanese yen – The yen strengthened sharply by 1.68% to 134.27, a level we have not seen since mid-June 2022. The scheduled departure of BoJ governor Haruhiko Kuroda in April 2023 leads to speculation of a shifting in the target range for Japanese government bond purchases from 10 years to five years, and eventually two years, under its yield curve control policy. The deputy governor reaffirmed the direction of the BoJ in keeping its policy ultra-loose currently due to the uncertainty in wage rises.

Chinese yuan – The yuan appreciated by 0.17% to 6.747. Amidst property woes, the PBoC will issue as much as US$148 billion of loans for stalled property developments in an attempt to revive the sector.

Korean won – The won firmed 1.06% to 1,299. Indonesia and South Korea have expanded an agreement to include active participation in the construction of the new Indonesian capital's infrastructure, and electronic government and smart city systems. In 2019, the two nations signed a cooperation agreement on the ambitious US$32 billion project, under which Indonesia will move its capital to Nusantara in Borneo.

Australian dollar – The Australian dollar eased 0.04% to a near six-week high at 0.699. A flash reading showed that retail sales in Australia grew slower at 0.2% m/m in June, compared to the market expectation of 0.5% and 0.7% m/m in May. It is the slowest pace of growth since December 2021 as surging inflation is constraining domestic spending.

Commodities Highlights

Crude oil – WTI crude dipped 0.86% to $96 per barrel while Brent crude futures rose 0.49% to $107 per barrel. After the US Commerce Department reported that the US economy unexpectedly contracted in the second quarter, prices pared gains in mid-morning trade, escalating worries about a recession that could affect energy demand.

Gold – Gold prices accelerated by 1.25% to US$1,755/oz in light of the contraction in the US economy as it maintains its safe-haven allure for investors.

Malaysia Highlights

Malaysian ringgit – The ringgit appreciated 0.11% to 4.453 amidst weeks of whipsaw trade. Malaysia’s external trade, which recorded a 26.1% growth in exports and 23.3% rise in imports, made history as it hit the RM2 trillion mark in 2021, a 24.9% y/y surge, after negative growth for two consecutive years. The trade balance remained in surplus with an increase of 38.4%.

KLSE – The FBM KLCI was up by rallied 1.39% to 1,491. Detailed transactions showed that the foreign investors were the net buyer with RM72.5mil flow, offset by the net selling flow from local institutions with RM62.8mil and local retailers with RM9.7mil.

Fixed Income – The MGS yield benchmark saw better bids with 7-year and 10- year -4.0 and -2.0 to 3.910% and 3.960%, respectively, while the 3-year and 5- year were unchanged at 3.530% and 3.740%.

Rates – The IRS yield for the (3Y) +0.5bps to 3.435%, (5Y) +0.3bps to 3.545%, (7Y) +0.8bps to 3.660%, and (10Y) +1.0bps to 3.760%

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.450 and 4.460 while our resistance is pinned at 4.560 and 4.610.

Source: AmInvest Research - 29 Jul 2022