• Stronger-than-expected US labour market data raises big Fed rate hike expectation

Global Highlights

Dollar Index – The greenback gained 0.88% to 106.62 as stronger-thanexpected labour market report fuelled higher and faster interest rate hike expectation. The US economy added 528K jobs in July, larger than the 398K back in June and higher than the 250K market estimate. In addition, the unemployment rate dipped to 3.5% in the same month while the market expected an unchanged level of 3.6%.

US equities & sovereign bonds – Wall Street was mixed where Dow Jones rose 0.23% to 32,803, S&P 500 declined 0.16% to 4,145 while the tech heavyweight Nasdaq fell 0.50% to 12,658. The UST10Y benchmark yield shot up 13.9bps to 2.827% while the UST2Y added 18.3bps to 3.226%, widening the inverted differential between the two to 39.9bps.

Euro – The euro fell 0.61% to 1.018. On Friday, Moody's changed Italy's outlook to "negative" from "stable", weeks after the resignation of Prime Minister Mario Draghi. Concerns have also been raised about Italy's credit condition, which has a government debt load that is more than that of the other four Eurozone members put together

British pound – The pound dipped 0.72% to 1.207 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 50bps hike. On the data front, the House Price Index in the UK rose 11.8% y/y for the month of July 2022, slower than June’s 12.5% y/y. House prices are expected to fall further amidst rising interest rates and the inflation condition.

Japanese yen – The yen weakened 1.60% to 135.01. The index of coincident economic indicators in Japan, which comprises a variety of data including industrial output, employment and retail sales, increased to 99.0 in June 2022 from 94.9 the month before. This was the highest reading since September 2019, as Covid-19 conditions continued to improve following the government's relaxation of all travel restrictions related to the epidemic.

Chinese yuan – The yuan also dipped by 0.19% to 6.762. Geopolitical tensions tightened as China deployed military drills and fired missiles near Taiwan a day after US House of Representatives Speaker Nancy Pelosi’s visit. Foreign investors were net sellers of Chinese stocks in July with 21.07 billion yuan via Stock Connect with 11.8 billion and 9.27 billion worth of shares on the Shanghai and Shenzhen stock exchanges respectively.

Korean won – The won appreciated 0.90% to 1,298. The current account showed a surplus of US$5.61 billion in June 2022, which was positive for the second consecutive month but still far below the surplus recorded a year earlier due to high import costs amid rising energy and commodities prices.

Australian dollar – The Australian dollar tumbled 0.86% to 0.691. The RBA updated its prediction for annual inflation on Friday, forecasting that it will reach 7.75% by the end of this year, in line with Treasury projections. Still, a prolonged period of suffering was anticipated because inflation was not expected to return to the top of its target range of 2–3% until the end of 2024,

Commodities Highlights

Crude oil – Oil prices rose with WTI gaining 0.53% to US$89 per barrel and Brent falling 0.85% to US$94 per barrel on worries of demand for fuel could deteriorate due to recession.

Gold – The price of gold sank to US$1,776/oz due to the combination of a stronger dollar and soaring Treasury yields.

Malaysia Highlights

Malaysian ringgit – The ringgit firmed 0.16% to 4.451 and traded within the range of 4.457 and 4.450. Malaysia’s MoF stated that the country is still on track of recovery to achieve the projection of 5.3% to 6.3% GDP growth but risks to recovery are getting louder coming from the Ukraine-Russia war, China’s zero-Covid policy, higher inflation, global economic growth slowdown and possibly escalating China-Taiwan tension.

KLSE – The FBM KLCI lost 0.41% to 1,502 due to profit-taking activities. Detailed transactions showed that local institutions were net sellers with RM27.7 mil. Local retailers and foreign investors were net buyer with RM8.5 mil and RM19.2 mil flow, respectively.

Fixed income – The government benchmark bonds traded firmer with the 3- year -3.5bps to 3.485%, 5-year -1.0bps to 3.790%, 7-year -1.0bps to 3.910%, and 10-year -4.0bps to 3.940%.

Rates – The IRS yield for (3Y) and (10Y) was flat at 3.455% and 3.780%, respectively, while the (5Y) 1.2bps to 3.595%, and (7Y) +1.0bps to 3.780%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.490 and 4.450 while our resistance is pinned at 4.500 and 4.510.

Source: AmInvest Research - 8 Aug 2022