• Fed officials restate central bank’s determination to fight inflation

Global Highlights

Dollar Index – The dollar lost 0.10% to 105.09, the lowest level since early July. US producer prices surprisingly decreased by 0.5% m/m in July from a downwardly revised 1% in June, and exceeding market expectations of a 0.2% increase. It is the PPI's first dip in more than two years, mostly attributed to a 16.7% fall in gasoline prices. Producer inflation y/y fell to 9.8%, the lowest since October, and fell short of expectations of 10.4%. Unshaken by the softer CPI figures, Fed officials reiterated the central bank determination to hike interest rate to fight inflation. Chicago Fed president expects the interest rate to reach 4.0% in 2023 while Minneapolis Fed president is seeing 4.4% by end- 2023.

US equities & sovereign bonds – Wall Street was mixed as the Dow Jones inched higher 0.08% to 33,337, S&P 500 trimmed 0.07% to 4,207, while Nasdaq edged lower 0.58% to 12,780. The UST10Y benchmark yield added 10.7bps to 2.888%, while the UST2Y rose 0.4bps to 3.219%, narrowing the inverted differential between the two to 33.1bps.

Euro – The euro rose 0.84% to 1.030. Russian coal is now subject to European Union sanctions that were decided in April 2022. The Commission estimated that Russia would lose around €8 billion in revenue as a result of the coal ban. For perspective, the EU imported 46% of coal imports from Russia in 2021.

British pound – The pound, however, fell 0.11% to 1.221, cutting some gains it made from the previous session. Market players are staying on the sidelines ahead of UK GDP data that will be released later today.

Japanese yen – The yen weakened slightly by 0.10% to 133.02 after its recent advance. With cabinet reshuffle already done, PM Fumio Kishida will now focus on looking for the next BoJ’s governor, which may indicate that the there will be changes in the central bank’s ultra-accommodative policy once the new governor is selected.

Chinese yuan – The yuan dipped 0.31% to 6.745. According to data from the China Association of Automobile Manufacturers, auto sales in China climbed by 29.7% y/y to 2.42 million units in July, up from a 23.8% rise in the previous month. The 2-month increase in car sales can be attributed to the government's incentives to the sector and a recovery in production, along with loosening Covid-19 limitations.

Korean won – The won strengthened 0.56% to 1,303, erasing most of its losses in the previous session. South Korea’s import prices surged 27.9% y/y in July from 33.6% in the previous month. On a monthly basis, import prices went down 0.9% m/m, the first decline since April as worrying global recession outlook drove down oil and fuel prices.

Australian dollar – The Australian dollar gained 0.24% to 0.711, benefitting from the risk-on sentiment. The latest release of the Australia Consumer Inflation Expectations showed a drop to 5.9% in August, versus 6.3% prior.

Commodities Highlights

Crude oil – WTI crude surged 2.62% to US$94 per barrel, while Brent crude soared 2.26% to US$99 per barrel. OPEC projected a 3.1 million bpd increase in oil demand in 2022, a decrease of 260,000 bpd from its prior prediction due to Russia's invasion of Ukraine, high inflation and measures to limit the pandemic. Russia oil output is also expected to fall when the EU’s ban takes effect.

Gold – The price of gold dipped 0.15% to US$1,789/oz due to profit-taking and hawkish guidance from US Fed officials.

Malaysia Highlights

Malaysian ringgit – The ringgit strengthened sharply 0.23% to below 4.45 level at 4.445. Malaysia's consumer spending is growing rapidly amid a full economy reopening. Distributive trade sales expanded by 26.3% y/y in 2Q2022, compared to 8.6% in 1Q2022.

KLSE – The FBM KLCI gained 0.89% to 1,506 with gainers seen in technology, energy, and industrial products & services. Detailed transactions showed that foreign investors were net buyers at RM232.9mil, offset by local institutions and retailers’ selling flow of RM171.0mil and RM61.9mil, respectively.

Fixed Income – Local benchmark yield saw mixed movement with 3-year - 2.5bp to 3.480%, 5-year -2.5bps to 3.755%, while 10-year +1.0bps to 3.960%, and 7-year was unchanged at 3.920%.

Rates – The IRS yield for (3Y) was -3.5bps to 3.440%, (5Y) -3.5bps to 3.565%, (7Y) -3.0bps to 3.680%, and (10Y) -5.0bps to at 3.780%

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.440 and 4.450 while our resistance is pinned at 4.500 and 4.510.

Source: AmInvest Research - 12 Aug 2022