• PBoC unexpectedly cuts lending rate

Global Highlights

Dollar Index – The dollar gained 0.87% to above 106 handle at 106.55. The US reported a capital and financial account surplus of US$22.1 billion, down from the previous month's surplus of US$194.5 billion. Foreign investors acquired US$58.9 billion in June compared with US$99.9 billion in May. Also, the dollar was supported by the hawkish remarks by a number of Fed’s officials, emphasizing that dovish pivot is unlikely despite the peaking inflation.

US equities & sovereign bonds – Wall Street was closed slightly higher as the Dow Jones rose 0.45% to 33,912, S&P500 climbed 0.40% to 4,297, while the Nasdaq inched higher by 0.62% to 13,128. The UST10Y benchmark yield fell 4.3bps to 2.788% while the UST2Y yield down 6.0bps to 3.182, slightly narrowing the inverted yield differential between the two at 39.4bps.

Euro – The euro fell 0.97% to 1.016 as concerns about an economic slowdown, particularly in Europe, heightened. The euro has been trading near parity since early July, and the ECB plans to keep raising borrowing costs as there are more and more indications that the Euro Area economy is about to enter a recession.

British pound – The pound lost 0.68% to 1.206 as traders await this week's release of important UK economic data. Inflation, unemployment, and retail sales data will be released by the ONS, providing new information on the labour market's recovery and price pressures as well as more hints about the amount of the BoE rate hike in September.

Japanese yen – The yen strengthened marginally by 0.07% to 133.32 propelled by firm economic growth data. GDP expanded by 2.2% in 2Q2022 y/y, marking the third consecutive quarter of growth, albeit below market expectations of a 2.5% growth. Following a revised 0.1% rise in 1Q, when rising Covid-19 cases affected spending, the most recent GDP numbers are now at the level it was before to the pandemic's global spread, according to some reports.

Chinese yuan – The yuan depreciated 0.46% to 6.774, the lowest level in nearly two weeks. China's industrial production rose by a smaller 3.8% in July y/y from 3.9% in June, which was below the market consensus of 4.6%. Despite indications of a shaky economic recovery brought on by Covid-19 restrictions, industrial output expanded for the third month in a row. On the monetary policy front, China’s central bank unexpectedly cut its interest rate in an effort to revitalize the economy. The one-year policy rate was trimmed 10bps to 2.75% and injecting 2 billion yuan by cutting 7-day reverse repos rate by same margin to 2.00%.

Korean won – The won weakened 0.29% to 1,306. Foreign holdings of South Korean stocks on the benchmark Kospi shrank to 606.2 trillion won (US$464.1 billion), or 30.51% of the total, on Thursday. This is the lowest level since August 2009 as investor optimism was dampened by concerns about US Federal Reserve rate hikes and a potential recession.

Australian dollar – The Australian dollar tumbled sharply by 1.38% to 0.702 falling from last week’s two-month high. Since mid-July, Australia has experienced a significant run-up on expectations that other major central banks will follow the Fed's tightening cycle. However, remarks from Fed officials suggesting willingness to raise rates further to combat inflation caused markets to revaluate those expectations.

Commodities Highlights

Crude oil – WTI crude sank 2.91% to $89 per barrel, while Brent crude futures dropped 3.11% to $95 per barrel amidst worsening recessionary angst. The OPEC anticipated a fall in oil consumption and an increase in production, which contradicted opposing views from the IEA citing gas-to-oil switching for power generation. This expectation was bolstered by the economy's worsening outlook.

Gold – The price of gold slipped 1.26% to US$1,780/oz, amid concerns that the Federal Reserve will maintain the aggressive interest rate hike pace to fight inflation.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened 0.31% to 4.458 despite the strongerthan-expected Malaysia’s GDP released last Friday. Also, the new pricing of chickens and eggs after 31 August will consider input from the DVS and DOSM, as well as the quantity of chickens that can be re-exported and the availability of imported chickens and locally produced chickens. The decision to lift the present ban on chicken exports and set new ceiling prices for chickens and eggs will not be finalised until the relevant ministries and agencies provide the Special Task Force Against Inflation comprehensive assessments on the state of supply and demand.

KLSE – The FBM KLCI fell 0.14% to 1,504. Detailed transactions showed that local institutions were net seller of RM188.8mil. Local retailers and foreign investors were buyers of RM68.3mil and RM120.5mil, respectively.

Fixed income – It was a dull day for the local fixed income market as most benchmark yields remained unchanged. The 3-year still at 3.476%, 5-year at 3.777%, and 10-year at 3.960%, while the 7-year +2.0bps to 3.920%.

Rates – The IRS yield for the (3Y) -1.5bps to 3.465%, (5Y) -1.2bps to 3.595%, (7Y) -1.0bps to 3.690%, and (10Y) -1.2bps to 3.785%.

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

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 - 16 Aug 2022