• BOE raises interest rates by 50bps.

Global Highlights

Dollar Index – The dollar weakened 0.76% to 105.693, as the market turned cautious prior to the labour market report that is due later today. Initial claims for state unemployment benefits are on an upward trend, rising by 6,000 to 260,000 for the week ended 30 July. The lowest level was in April, where total initial claims were only around 180,000.

US equities & sovereign bonds – Wall Street was mixed where Dow Jones down 0.26% to 32,727, S&P 500 down 0.08% to 4,152 but the tech heavyweight Nasdaq up 0.41% to 12,721. The UST10Y benchmark yield was 2.668%, while the UST2Y was at 3.043%, where the differential between these securities was -35.44 bps.

Euro – The euro gained 0.79% to 1.025 after dollar weakened. The S&P Global Eurozone Building PMI registered 45.7 in July, down from 47.0 in June, indicating a third consecutive month of decreased overall construction activity throughout the Eurozone. The rate of contraction was also the sharpest since February 2021.

British pound – The pound gained 0.09% to 1.216 despite the BoE raising the bank rate by 50bps to 1.75%, the highest increase since 1995, with signs that it may not be the last rate hike for this year. The BoE revised its inflation forecast higher to 13.3% in October, the highest since 1980, with energy bills expected to climb by more than 60% while warning of a recession occurring in in the fourth quarter of this year.

Japanese yen – The yen rose 0.72% to 132.89 as a stronger yen and positive domestic business profits boosted the Nikkei 225 Index for the second straight session on Thursday, closing higher by 0.69% at 27,932.

Chinese yuan – The yuan was 0.13% firmer at 6.749. Geopolitical tensions heightened as China deployed military drills and fired missiles near Taiwan a day after US House of Representatives Speaker Nancy Pelosi’s visit.

Korean won – The won edged up 0.05% to 1,310.07. The Bank of Korea changed its view on the path of the interest rates, mentioning that adjustments will be made gradually. This was due to concerns on rising household debt among South Koreans, as higher lending rates will make it tougher for these households to repay their loans.

Australian dollar – The Australian dollar added 0.33% to 0.697. Australia’s trade balance widened from A$15.0bil to A$17.7bil, attributed to higher exports that expanded by 5.1% m/m, and slower growth in imports which increased by 0.7% m/m. The main driver for the higher exports was shipments of minerals, gold and iron ore.

Commodities Highlights

Crude oil – Brent was down by 2.75% to $94.12 per barrel and WTI also lower by 2.34% to US$88.54 per barrel. This will be the lowest reading for both commodities since March after Russia’s invasion of Ukraine. The declining trend for the past few weeks is reflecting the market’s pessimism on the outlook due to the high interest rate environments.

Gold – Gold gained by 1.47% to US$ 1,791/oz, rebounding to the same level back in early of July this year. The gain could reflect the market’s sentiment on the weakening global growth prospect heading toward the end of the year.

Malaysia Highlights

Malaysian ringgit – The ringgit depreciated by 0.05% to 4.458 despite the weaker dollar and stronger yuan. Parliament passed the new bill which allows low-value goods sold online and delivered to Malaysia to be subjected to a 10% tax, hoping to raise an additional RM200mil in the annual tax revenue.

Fixed Income – The MGS 3Y remained at 3.520%, 5Y up 3.0bps to 3.800% (replacing MGS 11/26), 7Y remained at 3.940%, and 10Y up 1.0bps to 3.970%.

KLSE – The FBM KLCI rose by 1.15% to 1,508.

Rates – The IRS yield for the (3Y) was +1.00bps to 3.455%, (5Y) +4.75bps to 3.608%, (7Y) +1.50bps to 3.680%, and (10Y) up +3.00bps 3.780%

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

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 - 5 Aug 2022