• Japanese yen hits its weakest level in more than 20 years

Global Highlights

Dollar Index – The dollar edged lower by 0.07% to 108.70. Cleveland Federal Reserve Bank president Loretta Mester said the Fed will need to hike interest rates somewhere above 4% by early next year and then hold them there in order to bring high inflation back down to the central bank's target. She added that rather than relying heavily on the monthly jobs report, she will base her judgement on the inflation outlook when deciding whether to support a third consecutive 75bps interest rate hike next month.

US equities & sovereign bonds – Wall Street closed in the red for the fourth consecutive session as the Dow Jones fell 0.88% to 31,510, S&P 500 dropped 0.78% to 3,955, while the Nasdaq lost 0.56% to 11,816. The UST10Y benchmark yield jumped 9.0bps to 3.193% while the UST2Y rose 5.1bps to 3.493%, narrowing the inverted differential between the two to 30bps. It has been more than 40 days straight that the 10/2 rate remained inverted.

Euro – The euro gained 0.39% to 1.005, just a tad above the parity level with the USD. Preliminary estimates showed that the annual inflation rate in the Euro Area increased from 8.9% in July to 9.1% in August of 2022, exceeding market expectations of 9%. This suggests that households and businesses will continue to experience adversity as they deplete their cash reserves. This will support the case for a significant 75bps ECB rate increase next week.

British pound – Despite the shaky dollar, the pound lost 0.29% to 1.162. Consumer credit in the UK rose by £1.43 billion for July 2022, lower than £1.78 billion June (cons.: £1 billion) and still above the pre-pandemic 12-month average level of £1 billion.

Japanese yen – The yen weakened 0.12% to 138.96, reaching the weakest level since 1998. We posit that the yen will stay weak as BoJ governor Haruhiko Kuroda stated that the central bank is likely to stay accommodative, unless wages and prices grow in a stable and sustainable manner. On the data front, the Consumer Confidence Index in Japan rose to a three-month high of 32.5 in August from an 18-month low of 30.2, as the Covid-19 situation continued to improve after the government lifted all pandemic-related restrictions.

Chinese yuan – The yuan strengthened 0.30% to 6.890. The NBS Composite PMI Output Index in China fell to 51.7 in August from 52.5 the previous month as a result of rising Covid-19 infections in multiple cities, increased mobility restrictions, and power shortages brought on by the worst heatwaves in decades. While the services sector experienced the slowest growth in three months, factory activity declined for the second consecutive month. Also, fresh Covid-19 outbreaks in China prompted the government to place millions in lockdown that affects Shenzhen, Guangzhou, and central Hebei province.

Korean won – The won improved 0.61% to 1,339. South Korea's industrial production increased 1.5% y/y in July, slightly better than the 1.3% gain in June but still fell short of expectations for a 2.9% growth as the country showed symptoms of slowing down. The BoK increased its policy rate by a total of 2% starting in August of last year, but the country's economy was still struggling under the weight of out-of-control inflation and rising interest rates.

Australian dollar – The Australian dollar shed 0.18% to 0.684. In 1Q2022, total construction work in Australia unexpectedly decreased by 3.8% on a q/q seasonally adjusted basis, missing market forecasts of a 0.9% rise and coming off a downwardly revised 0.3% decline. Due to losses in building work, residential, non-residential, and engineering work, construction activity shrank for the second consecutive quarter at its steepest pace since 3Q2016.

Commodities Highlights

Crude oil – WTI crude tumbled 2.28% to US$89 per barrel, while Brent crude sank 2.84% to US$96 per barrel as investors raise concerns that the global economy might weaken more due to new Covid-19 curbs in China.

Gold – The price of gold fell 0.75% to US$1,711/oz. All of the gains recorded earlier in the month have been reversed, as the metal is currently down more than 2% in August.

Malaysia Highlights

Malaysian ringgit – The ringgit gained 0.02% to 4.476. Malaysia's subsidy bill is set to reach RM80 billion this year, the largest in history, according to the government. Based on DOSM data, the government added that the country's inflation rate would have reached more than 12% without subsidies.

KLSE – The FBM KLCI remained at the 1,512 level after it rose 0.69% on Tuesday. The market was closed on Wednesday due to the Merdeka celebration holiday.

Fixed income – The local bond market saw better bids on Tuesday as the 3- year was -1.0bps to 3.330%, 5-year -3.0bps to 3.730%, 7-year -5.5bps to 3.885%, and 10-year -3.0bps to 3.990%.

Rates – On Tuesday, the IRS yield for the (3Y) was -0.5 bps to 3.550%, (5Y) - 1.0bps to 3.670%, (7Y) -1.5bps to 3.760%, and (10Y) +0.5bps to 3.935%.

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

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 - 1 Sept 2022