• ECB makes historic move of raising interest rate by 75bps

Global Highlights

Dollar Index – The greenback fell 0.12% to 109.77 following the US Fed chair Jerome Powell’s speech at the Cato Institute. He reiterated the need for the central bank to increase its interest rate in order to fight inflation. While some market participants are pricing in another 75bps rate hike when the Fed meets later this month, we reiterate our view that the Fed will raise it by 50bps instead. The labour market situation in the US remained tight as the number for new unemployment benefit claims fell to 222K last week, the lowest level since May 2022 (cons. 240K).

US equities & sovereign bonds – Wall Street gained some ground as the Dow Jones rose 0.61% to 31,775, S&P 500 lost 0.66% to 4,006, while the Nasdaq fell 0.60% to 11,862. The UST10Y benchmark yield added 5.4bps to 3.317% while the UST2Y rose 7.3bps to 3.504%, which means the inverted differential between the two is now at 18.7bps.

Euro – The euro shed 0.09% to 1.000 at parity despite the ECB making a historic move of 75bps yesterday. As the central bank pledged to fight inflation, the outlook for the Euro Area is increasingly grim amidst energy crisis and high cost-of-living woes. However, the currency is now slightly higher than the 20- year low it reached few days ago.

British pound – The pound dipped 0.25% to 1.150, a level we have not seen since the start of the pandemic in 2020. Newly elected PM Liz Truss unveiled a new plan to tackle surging energy costs which would cost the government around £150 billion. Market players are having doubts on how the bill would be funded.

Japanese yen – The yen weakened further by 0.26% to 144.11, the lowest level since August 1998, pushing the ytd depreciation against the USD to more than 23%. The currency remains pressured by the difference in the monetary policy stances of the BoJ and the US Fed. On the data front, final data showed that the Japanese economy expanded by 0.9% q/q for the 2Q22, higher than the preliminary figure of 0.5% q/q, and much higher than the 1Q22 reading of 0.1% q/q.

Chinese yuan – The yuan strengthened slightly by 0.12% to 6.958 as the fundamental economic driver in China remains disrupted by the zero-Covid policy and real estate sector crisis. The recent weaker-than-expected trade data also does not help to improve yuan sentiment.

Korean won – The won appreciated by 0.26% to 1,381. The Bank of Korea (BoK) prefers to put its priority in making sure that prices grow steadily in order to have sustainable long-term growth, thus reinstating its stance in fighting inflation. The central bank also said that a larger rate hike is needed also due to the weakening trend in the won. The BOK has raised its policy rate to 2.50% from its record low of 0.50% since August last year as it tries to rein in inflation, with the latest move of a 25bps rate increase in August.

Australian dollar – Despite the lower dollar, the Aussie dollar shed 0.27% to 0.675. Australia’s exports in July 2022 declined by 9.9% m/m while its imports jumped 5.0% m/m, bringing the trade balance lower at A$8.7 billion from A$17.1 billion in the prior month.

Commodities Highlights

Crude oil – Brent climbed 1.31% to US$89 per barrel while WTI rose 1.95% to US$83 per barrel as data showed the build-up in US oil inventories which jumped 8.84 million barrels last week. However, the market was expecting a 0.25 million barrel decline.

Gold – Gold lost 0.58% to US$1,708/oz amidst the higher prospect of elevated interest rate globally and a surging US dollar.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened marginally by 0.01% to 4.503 and traded within the range of 4.5025 and 4.4975. This is after BNM raised the OPR by 25bps to 2.50% as widely expected. BNM said that the move was taken in view of the country’s growth prospects remaining intact while expecting inflation to peak in the third quarter this year before moderating thereafter.

KLSE – The FBM KLCI climbed 0.23% to 1,495. Detailed transactions showed that foreign investors and the local retailers were net sellers with RM2.6mil and RM0.9mil flows, offset by local institutions’ buying RM3.5mil flow.

Fixed income – The local bond market saw firmer trades as the 3-year was - 4.0bps to 3.340%, 5-year -7.0bps to 3.770%, 7-year -5.0bps to 3.960%, and 10- year -5.0bps to 4.070%.

Rates – The IRS yield for the (3Y) was -6.0bps to 3.625%, (5Y) -5.8bps to 3.780%, (7Y) -6.5bps to 3.870%, and (10Y) -7.0bps to 4.040%.

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

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 - 9 Sept 2022