• Global preliminary PMI figures solidify recession possibility

Global Highlights

Dollar Index – The Dollar Index edged lower by 0.39% to 108.62, pulling back from its recent 20-year peak. The early August PMI data came in weaker than expected, stoking fears of recession and lower the bet that the Fed will continue to be aggressive in fighting inflation. The US S&P Global Manufacturing PMI fell to 51.3 while the Service PMI dropped further into the contraction zone at 44.1. Both readings marked the lowest levels since 2020. The silver lining is that private sectors noted that input prices have eased and an easing in supply chain disruptions has emerged.

US equities & sovereign bonds – Wall Street was in the red with Dow Jones falling 0.47% to 32,910, S&P 500 declining 0.22% to 4,129, while Nasdaq slid to 12,381 from 12,382. The UST10Y benchmark yield added 3.1bps to 3.046%, while the UST2Y fell 1.0bps to 3.300%, narrowing the inverted differential between the two to 25.4bps.

Euro – The euro gained 0.27% to 0.997, rebounding to the parity level. Worries over recession in Europe deepened again, induced by the unscheduled maintenance works in the Nord Stream 1 pipeline, which runs from Russia to Germany, and pushing the natural gas price to reach a new record. On Tuesday, the Dutch TTF natural gas futures were up by around 13% at €276 per-megawatt hour after reaching €291 on previous day.

British pound – The pound rose 0.59% to 1.184. The UK’s manufacturing sector output shrank as the preliminary UK PMI showed the headline reading at 46, the first contraction since May 2020 amidst reduced demand, inputs delayed delivery and labour shortages.

Japanese yen – The yen strengthened 0.52% to 136.77. Japan’s manufacturing sector remained in the growth zone according to early S&P Global PMI data, but the services sector on the other hand recorded the first contraction since March 2022 as elevated Covid-19 cases in the country dampened domestic demand. The manufacturing headline reading was 51 in August, down from 52.1 in July while the services reading was down to 49.2 from 50.3.

Chinese yuan – The yuan also climbed as it added 0.19% to 6.835. The weaker yen may help exporters and provide additional support for its struggling economy, but it also can cause capital outflows and market volatility in the local financial market.

Korean won – Interestingly, the won weakened 0.43% to 1,346 despite the weaker dollar. On the data front, the South Korea consumer sentiment rebounded to 88.8 in August 2022 from 86 in July albeit still near the lowest score in two years. The better reading was driven by the higher current living standards, household income and domestic economic conditions.

Australian dollar – The Aussie dollar climbed 0.79% to 0.693. According to the S&P Global Australia PMI report, the manufacturing PMI slid to 54.5 in August 2022 from 55.7 in July while services PMI dropped to a contraction of 49.6 from 50.9, marking declining output for the first time since January 2022.

Commodities Highlights

Crude oil – Oil prices surged following the warning from Saudi Arabia which stated that OPEC+ could reduce output to counter weakening oil prices if the Iranian supply do come into the market and due to the build-up in the US crude inventories. Brent surged 3.88% to US$100 per barrel while WTI soared 3.89% to US$93 per barrel.

Gold – Gold rose 0.68% to US$1,748/oz as the fears of global recession heightened.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened further by 0.04% to 4.488 and traded within the range 4.4905 and 4.486. Malaysia’s PM stated that Budget 2023 is prepared with the well-being of the rakyat at its core and this includes the creation of jobs, an increase of income and the survival of businesses.

KLSE – The FBM KLCI fell 0.32% to 1,483 dragged by plantation, industrial products, and finance. Detailed transactions showed that local institutions were net sellers with a RM40.4mil position, offset by local retailers with RM26.2mil and RM14.2mil from foreign investors.

Fixed income – The MGS 3-year benchmark yield was unchanged at 3.400%, while the 5-year +1.0bps to 3.728%, 7-year +1.0bps to 3.928%, and 10-year +2.0bps to 3.990%.

Rates – The IRS yield for the (3Y) +3.5bps to 3.535%, (5Y) +3.5bps to 3.670%, (7Y) +3.0bps to 3.795%, and (10Y) +4.2bps to 3.952%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.475 and 4.485 while our resistance is pinned at 4.570 and 4.630.

Source: AmInvest Research - 24 Aug 2022