• Dollar Index records another 20-year high

Global Highlights

Dollar Index – The greenback gained 0.62% to 110.21, reaching a new 20-year high as market players anticipated more interest rate hikes by the US Federal Reserve. The markets are now pricing in another 75bps rate hike this month following the better-than-expected PMI data. The ISM non-manufacturing PMI climbed to 56.9 in August 2022 from 56.7 while the market was expecting a modest improvement of 55.1. However, it was a stark contrast to the S&P Global services PMI which fell to 43.7 from 47, the lowest level since May 2020.

US equities & sovereign bonds – Wall Street closed in the red again as the Dow Jones dropped 0.55% to 31,145, the S&P 500 lost 0.41% to 3,908 while the Nasdaq tumbled 0.74% to 11,545. The UST10Y benchmark yield climbed 16bps to 3.349% while the shorter term 2Y gained 11bps to 3.503%, narrowing the differential between the two to 15bps. Including this, the 10Y/2Y rates have been inverted for the 46th straight sessions.

Euro – The euro shed 0.25% to 0.990, dipping below 0.99 for the first time in nearly 20 years as the energy crisis continues to overwhelm the region’s economic prospect. On the data front, the S&P Global Eurozone Construction PMI dropped to 44.2 in August from 45.7 in the prior month, the lowest level since January 2021. Most of its components, including employment and outlook, were around the levels we last saw during the pandemic in 2020.

British pound – The pound sterling edged higher slightly by 0.03% to 1.152, the weakest level since 1985, overwhelmed by the stronger dollar, fading economic prospect, and surging inflation and energy crisis which put pressure on household purchasing power. Nevertheless, there’s a sigh a of relief among investors amidst the political certainty as Liz Truss was confirmed as the leader for Conservative party and the new PM.

Japanese yen – The yen weakened sharply by 1.56% to 142.80, already reaching the weakest point last seen in 1998, after the storm of the Asian financial crisis. This sparks the question of whether regulators will intervene in the FX market amidst stark differences in policy between the US Fed and BoJ. On the data front, nominal wages in Japan rose 1.8% y/y in July, increasing for the seventh consecutive month but the real wage dropped 1.3% y/y, declining for the fourth straight month.

Chinese yuan – The yuan also slipped by 0.30% to around August 2020’s level at 6.955. The PBoC set the yuan’s reference rate at a lower 6.9096 per dollar on Tuesday, for the first time in two years amidst real estate woes, Covid-19 lockdowns while being supported by an easing monetary policy and tightening global central banks. It also stated that it will cut the forex reserve requirement ratio by 200 basis points to 6% beginning 15 Sep, in a move to limit the yuan weaknesses.

Korean won – The won depreciated by 0.12% to 1,374, a level last seen in 2009 as the US dollar continued its bull run. This is despite the country’s finance minister warning that the government will take action against the FX market disruptive behaviour.

Australian dollar – The Australian dollar sank 0.91% to 0.674 despite the RBA’s move to hike its interest rate by 50bps, as widely expected, bringing the cash rate to 2.35%. The central bank also pointed out the need to continue tightening to bring inflation down to its target.

Commodities Highlights

Crude oil – Brent tumbled by 3.04% to US$92 per barrel while WTI rose slightly by 0.01% to US$86 per barrel, erasing the OPEC+ induced rally as global oil prices were weighed down by lower demand due to rising interest rates and stringent Covid-19 lockdowns in China.

Gold – The precious metal has been dragged lower by rising greenback and bond yields as its price fell 0.48% to US$1,702/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened 0.14% to 4.499 and traded within the range of 4.5002 and 4.4875. According to reports, Malaysia has secured investments worth RM9.3 billion from Japan in sectors such as the E&E, R&D, biomass, information technology and communication, chemical industry and foods.

KLSE – The FBM KLCI edged lower by 0.10% to 1,488, due to profit-taking activities, particularly in financial services stocks. Detailed transactions showed that local institutions were net buyers with RM59.3mil, offset by the net selling flow from local retailers and foreign investors with RM17.1mil and RM42.2mil, respectively.

Fixed income – The local bond market was quiet as all the benchmark yields remained unchanged except for 5-year which +1.0bps to 3.780%. The 3-year, 5-year and 7-year was flat at 3.340%, 3.940%, and 4.030%.

Rates – The IRS yield for the (3Y) +0.5bps to 3.620%, (5Y) +2.5bps to 3.800%, (7Y) +2.0bps to 3.875%, and (10Y) +2.5bps to 4.050%.

Against major currencies – The ringgit was stronger against the AUD, JPY, CNY, and THB, but weaker against the EUR, GBP, SGD, 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 - 7 Sept 2022