• Global Services PMI signals mixed development

Global Highlights

Dollar Index – The dollar gained 0.25% to 106.51, recovering from the onemonth low it hit recently. July’s ISM Services PMI surprisingly rose to 56.7, the highest reading in three months, from 55.3 in June, exceeding market expectations of 53.5. On another note, several Fed policymakers indicated that the central bank remained committed in tightening its policy to a more restrictive level and taming down the runaway inflation.

US equities & sovereign bonds – Wall Street rallied with the Dow Jones gaining 1.29% to 32,813, the S&P 500 climbing 1.56% to 4,155 and Nasdaq surging 2.59% to 12,668. The benchmark UST10Y yield fell 4.4bps to 2.705%, while the UST2Y jumped 1.4bps to 3.065%, widening the inverted yield differences between the two to 36bps.

Euro – Interestingly, the euro was flat at 1.017 amidst poor economic data released for the euro area. Retail sales in the region dropped lower than expected at 3.7% y/y compared to the market estimate of a 1.7% y/y contraction as surging inflation, elevated interest rate costs and deteriorating consumer confidence are already biting into retail trade.

British pound – The pound eased 0.17% to 1.215. The S&P Global/CIPS UK Services PMI dropped to 53.6 from June’s 54.3 as inflationary pressures persist. Also, the S&P's composite PMI fell to 52.1, a 16-month low. The market is expecting the BoE to raise its key interest rate by 50bps to 1.75% as it tries to bring down the inflation.

Japanese yen – The yen depreciated by 0.52% to 133.86, erasing gains it made over the past week. Jibun Bank’s service sector PMI was down to 50.3 in July from 54.0 in June as concerns over the rising Covid-19 cases in the country have worsened. Also, the composite PMI showed a drop from June’s 53.0 reading to 50.2 in July.

Chinese yuan – The yuan weakened 0.08% to 6.758. The Caixin services PMI grew to 55.5 in July from 54.5 in June as easing Covid curbs boosted consumer confidence. Political tensions surged as US House Speaker Nancy Pelosi visited Taiwan despite warnings from Beijing, consequently leading to China banning more imports from Taiwan.

Korean won – The won rose 0.41% to 1,311. A study by the BoK found that a full percentage point hike in the policy interest rate would cause residential property prices to fall in a range of 0.4% to 4.7% within a year, followed by 0.9% to 2.8% in two years. The interest rate is currently at 2.25% after five 25bps hikes since August 2021 and a 50bps hike in July 2022.

Australian dollar – The Aussie dollar gained 0.40% to 0.695, trimming some of its losses in the previous session. Australia’s retail sales in June grew at its slowest pace since Jan 2022 of 0.2% m/m as higher inflation is squeezing consumer spending,

Commodities Highlights

Crude oil – WTI crude fell 3.98% to US$90 per barrel, its lowest since 10 February while Brent crude futures tumbled 3.74% to US$96 per barrel, its lowest since 21 February following reports that crude and gasoline inventories in the US unexpectedly increased last week and OPEC+'s announcement that it will increase its oil output target by 100,000 barrels per day

Gold – Gold rose 0.28% to US$1,765/oz amid escalating geopolitical tension and heightened recession fears.

Malaysia Highlights

Malaysian ringgit – The ringgit depreciated slightly by 0.01% to 4.456, almost hitting its weakest level since the end of July and traded within the range of 4.459 and 4.455. Malaysia has agreed in principle to implement a global minimum tax of 15% on certain multinational companies (MNCs) and is among the 136 countries that were ready to abide by the global tax reform.

KLSE – The local bourse’s FBM KLCI fell 0.30% to 1,491, dragged by financial services and utilities. Detailed transactions showed that both foreign investors and local retailers were net buyers with RM75.02mil and RM5.21mil flow, respectively, while being offset by net selling from local institutions with RM80.22mil.

Fixed Income – Local govvies benchmark yields treaded upwards with the 3- year +2.0bps to 3.520%, 5-year +4.0bps to 3.755%, 7-year +9.0bps to 3.940%, and 10-year +7.0bps to 3.960%.

Rates – The IRS yield for the (3Y) +5.5bps to 3.450%, (5Y) +6.0bps to 3.560%, (7Y) +7.5bps to 3.665%, and (10Y) +9.0bps to 3.750%

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

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 - 4 Aug 2022