• Powell staying the rate hike course

Global Highlights

Dollar Index – The dollar gained 0.31% to 108.80. In his speech during the Jackson Hole conference, Fed chair Jerome Powell stated that while another unusually substantial hike may be justified at the following meeting, the choice for September will be made after considering all incoming data and the shifting economic outlook. Eventually, as the attitude of monetary policy tightens even more, it will probably be reasonable to slow the rate of increases.

US equities & sovereign bonds – Wall Street lost its ground when the Dow Jones sank 1,000 points or 3.03% to 32,283, the S&P 500 dropped 3.37% to 4,058, while the Nasdaq plunged 3.94% to 12,142. The UST10Y climbed 1.5bps to 3.041% while the UST2Y rose 3.1bps to 3.397%, widening the inverted differential between the two to 35.6bps.

Euro – The euro dipped 0.09% to 0.997, still below parity as inflation is now entering the double-digit territory with months left until its peak. Although unlikely, some European Central Bank officials want to consider a 75bps interest rate hike at the policy meeting on 8 September, unnamed direct sources told Reuters.

British pound – The pound lost 0.74% to 1.174. Energy costs will climb by 80% to an average of £3,549 (US$4,188) a year from October, according to the British regulator company Ofgem, and a further hike is predicted in January as Russia's decision to restrict supply to Europe pushes wholesale gas prices to all-time highs.

Japanese yen – The yen declined 0.84% to 137.64. The core CPI for the Kuarea of Tokyo increased by 2.6% to 102.4 points in August from a year earlier. This was the largest increase since October 2014 because of expanding inflationary pressures brought on by rising energy and other commodity prices. Although the rate of rises has remained small in comparison to other major economies, this signifies additional acceleration for consumer prices across the board in the coming months.

Chinese yuan – The yuan weakened 0.33% to 6.872. China's industrial companies' profits fell by 1.1% year over year to CNY 48.93 trillion in the first seven months of the year, reversing a 1.0% gain in the previous year as the economy continued to struggle with Covid-19 disruptions and an energy shortage caused by heatwaves. Last month, China's economy slowed down even more as both retail sales and industrial output fell short of market expectations.

Korean won – Despite the stronger dollar, the won strengthened 0.29% to 1,331. The BoK stated that although it started hiking interest rates before the Fed, the central bank must continue doing so until the rate of inflation begins to drop, and that it was unlikely to stop the tightening before the Fed. This year, the won has lost approximately 11% of its value against the US dollar, and local authorities have increased their monitoring of the won's movements.

Australian dollar – The Australian dollar tumbled 1.20% to 0.690 as investors were wary ahead of Powell's speech at the Jackson Hole conference. The RBA was expected to hike its policy rate by another half point in September but softening data from a mixed employment report pushed markets to reduce such expectations.

Commodities Highlights

Crude oil – WTI crude rose 0.58% to US$93 per barrel, while Brent climbed 1.66% to US$101 per barrel as the Saudi Arabian hints that OPEC would reduce output. However, trading was volatile as investors processed and eventually disregarded the US Federal Reserve chairman's warnings about impending economic hardship.

Gold – The price of gold fell 1.17% to US$1,738/oz after Powell reaffirmed the Fed’s aim to lower inflation and stated during his address saying that the central bank will keep raising interest rates. Since March, gold has been under pressure as central banks all over the world increase borrowing prices to combat growing inflation.

Malaysia Highlights

Malaysian ringgit – The ringgit appreciated 0.11% to 4.467 a level we have not seen since mid-August. It was traded within the range of 4.475 and 4.467. Following this year's substantial surge in global fuel prices, the government has chosen to keep the electricity tariff for all consumers at the same rate as 1H2022. Similarly, the government has agreed to maintain the RM9.40/kg ceiling price for standard chickens. On a side note, Budget 2023 will be tabled on 7 October, three weeks sooner than originally planned.

KLSE – The FBM KLCI climbed 0.32% to 1,500, snapping its six straight losing days. Detailed transactions showed that foreign investors were net buyers with RM71.7mil positions, offset by local institutions and retailers’ net selling flows of RM63.4mil and RM8.3mil, respectively.

Fixed income – The local bond market saw mixed movements as the MGS 3- year benchmark yield was -5.0bps to 3.310%, 7-year -1.0bps to 3.877%, 10- year 10bps to 3.964%, while the 5-year remained unchanged at 3.700%.

Rates – The IRS yield for the (3Y) was -1.0bps to 3.505%, (5Y) +1.5bps to 3.610%, (7Y) -1.5bps to 3.725%, and (10Y) +1.0bps to 3.885%.

Against major currencies – The ringgit strengthened across the board as it was up against the EUR, GBP, JPY, AUD, CNY, SGD, THB, IDR, PHP, and VND.

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.455 and 4.460 while our resistance is pinned at 4.500 and 4.550.

Source: AmInvest Research - 29 Aug 2022