• Euro, pound, yen gain after softer US inflation number

Global Highlights

Dollar Index – The dollar weakened 1.11% to 105.196 relative to the previous trading day, reflecting the slower inflation number of 8.5% in July, in line with our view. Prior to the announcement, the dollar was trading at 105.95, meaning the dollar declined by 0.71% after the inflation announcement.

US equities & sovereign bonds – Wall Street rallied, where Dow Jones gained 1.63% to 33,310, S&P 500 up 2.13% to 4,210 and the tech heavyweight Nasdaq added 2.89% to 12,855. The UST10Y benchmark yield was at 2.781%, while the UST2Y was at 3.214%, bringing the differential between them to -43.31bps.

Euro – The euro gained 0.84% to 1.030, reflecting to the slower inflation number from the US. The euro was trading higher at 1.037 two hours after the announcement, before reaching 1.030 by the end of the day. Despite the recent rally, the euro remains near parity as worries about an impending economic decline in Europe persist. High inflation and the ongoing energy crisis are both contributing to a widespread increase in consumer and producer costs.

British pound – The pound also added 1.15% to 1.222, absorbing the news from the US. Similarly, the pound rallied to 1.228 before closing at 1.222 by the end of the day. According to a survey, six million households in the UK already are at an all-time high level of consumer energy debt, owing providers an average of £206 (US$249) before their rates increase in October and again in January

Japanese yen – The yen rose 1.60% to 132.890 due to the weaker dollar. The yen was trading at its strongest level at 132.00 after the US inflation announcement. Producer prices in Japan climbed by 8.6% in July, receding from June’s 9.4%. This is the lowest level since December, suggesting that the inflationary pressure caused by rising material costs is easing.

Chinese yuan – The yuan gained 0.43% to 6.724. The annual inflation rate in China increased to 2.7% in July from 2.5% in June. This was the fastest rise in consumer prices since July 2020 and was primarily caused by a spike in food prices, which surged by 6.3%, the highest spike in 22 months.

Korean won – The won depreciated 0.47% to 1,310.52. South Korea's seasonally adjusted unemployment rate was 2.9% in July, unchanged from the previous month and below 3% for the sixth consecutive month. This indicates that the job market is doing well despite high inflation and rising interest rates.

Australian dollar – The Aussie dollar rose by 1.77% to 0.709, rallying after the softer inflation from the US. The Aussie dollar was trading at 0.710 after the announcement, before closing at 0.709.

Commodities Highlights

Crude oil – Oil prices gained, cooling the market’s concern on an economic slowdown. Brent was up 1.13% to US$97.40 per barrel and WTI was 1.58% higher at US$91.93 per barrel.

Gold – Gold fell 0.11% to US$1,792/oz, but still on an upward trend which began in mid-July. The decline reflects the market’s changing expectation of a better economic outlook after the slower US inflation number.

Malaysia Highlights

Malaysian ringgit – The ringgit was down 0.02% to 4.456, despite a weaker dollar and stronger yuan. The number of jobs in Malaysia's labour market increased by 3.2%, or 267,000 jobs, in 2Q22, reaching a record 8.619 million from 8.352 million at the same time last year. More than half of the jobs and filled jobs in 2Q22 were in the services sector with 4.476 million, while the manufacturing sector reported 2.358 million jobs and 2.251 million filled jobs.

KLSE – The FBM KLCI lost 0.36% to 1,492. Detailed transactions showed that local institutions and foreign investors were net sellers of RM78.9 mil and RM2.8 mil respectively. Local retailers were buyers of RM82.7.

Fixed income – The MGS for 3-year remained at 3.505%, 5-year down 1.0bps to 3.780%, 7-year remained 3.920%, and 10-year up 2.0bps 3.950%.

Rates – The IRS yield for (3Y) remained at 3.475%, (5Y) -2.50bps to 3.600%, (7Y) remained at 3.710%, and (10Y) +1.50bps to at 3.830%

Against major currencies – The ringgit was weaker against the JPY, CNY, SGD, THB and VND, and gained against the EUR, GBP, AUD, 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 - 11 Aug 2022