• UK inflation surges to 10.1%, highest in 40 years.

• Fed minutes shows FOMC will continue increasing interest rates.

Global Highlights

Dollar Index – The dollar gained 0.07% to 106.574. Retail sales in the US were unexpectedly flat in July as falling gasoline prices impacted receipts at service stations although consumer spending appeared to pick up at the start of the third quarter, diminishing concerns that the economy was in a slump. Fed minutes showed that FOMC members are not convinced inflation pressures have eased and will continue to increase rates, albeit the pace of future rate hikes may slow down.

US equities & sovereign bonds – Wall Street closed lower after the release of the Fed minutes, where Dow Jones lost 0.50% to 33,980, S&P 500 down 0.72% to 4,274 and the tech heavyweight Nasdaq declined 1.25% to 12,938. The UST10Y benchmark yield was at 2.897%, while the UST2Y was at 3.285%, bringing the differential between them to -38.80bps.

Euro – The euro gained 0.09% to 1.018. The Eurozone's quarterly GDP was revised down to 0.6% in 2Q2022, from an earlier estimate of 0.7%, following a 0.5% increase in 1Q2022. It remains the best performance in three quarters, due to the lifting of Covid restrictions and the summer tourism season in southern countries. But the high inflation environment plus tightening from the ECB might dampen growth momentum in the following quarters.

British pound – The pound dipped 0.40%, closing at 1.205 due to the high inflation reading at 10.1% in July. This is also the highest reading ever recorded in 40 years. Prior to the news, the GBP/USD was trading at around 1.2121, and dropped to 1.2050, depreciating by -0.59%, the lowest level since 5 Aug 2022.

Japanese yen – The yen shed 0.62% to 135.050 due to the stronger dollar. Japan’s trade balance remained in the deficit due to a higher imports growth of 47.2% y/y in July.

Chinese yuan – The yuan climbed 0.11% to 6.781 as state media quoted Premier Li Keqiang as saying that China will increase economic policy assistance and fully implement a package of pro-growth measures announced in May. His statement came a day after Chinese data showed additional signs of slowing growth, forcing the PBoC to suddenly slash key lending rates in an effort to boost demand.

Korean won – The won weakened 0.16% to 1,310.43. According to the Korea Rural Economic Institute, the third quarter of the year will see a continual rise in grain prices up to 16%, which is projected to lead to significant price increases in locally produced processed foods and meals served in restaurants.

Australian dollar – The Aussie dollar was down by 1.25% to 0.693. Australia's seasonally adjusted Wage Price Index increased by 2.6% y/y in 2Q2022, accelerating from a gain of 2.4% in 1Q2022 and beating market expectations of 2.7%. This suggests some demand pressure as the labour market improved.

Commodities Highlights

Crude oil – Brent gained 1.42% or to US$93.65 per barrel, and WTI added 1.83% to US$88.11 per barrel as concerns about increasing Russian output and exports as well as worries about a recession were overcome by a sharper-than anticipated decrease in US crude stocks.

Gold – Gold lost 0.78% to US$1,762/oz, in line with the stronger dollar. Demand slightly deteriorated after gaining last two weeks, mainly due to pessimism on the global economy as China’s economic data remained on the downside.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened 0.004% to 4.467 due to the stronger dollar. The finance minister expects Malaysia’s economy to face external challenges in the fourth quarter due to the Russian-Ukraine war and China's zero-Covid policy. The government maintains a GDP forecast of between 5.3% and 6.3% for 2022.

KLSE – The FBM KLCI was down 0.04% to 1,518. Detailed transactions showed that local institutions were net seller of RM170.3 mil. Local retailers and foreign investors were buyers of RM17.0 mil and RM153.3 mil respectively.

Rates – The IRS yield for the (3Y) up 4.00bps to 3.490%, (5Y) +3.00bps to 3.605%, (7Y) up +4.00 to 3.720%, and (10Y) +8.00bps to 3.825%

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.460 and 4.470 while our resistance is pinned at 4.570 and 4.630.

Source: AmInvest Research - 18 Aug 2022