• BoJ signals intervention to curb sinking yen

Global Highlights

Dollar Index – The greenback pulled back some gains as it fell by 0.14% to 109.66 following the US inflation data that prompted market players and us to bet for a more aggressive rate hike in September. The slight consolidation could be attributed to the easing US PPI which rose by 8.7% y/y in August from 9.8% y/y in July and slightly lower than market expectation of 8.8% y/y.

US equities & sovereign bonds – Wall Street closed higher across the board with the Dow up 0.10% to 31,135, the S&P500 climbed 0.34% to 3,946 while the Nasdaq surged 0.74% to 11,720.

The UST10Y benchmark yield lost 0.4bps to 3.404% while the UST2Y added 3.2bps to 3.788%. This widened the inverted yields differential between UST10/2 to 38.4bps.

Euro – The euro remained relatively unchanged. It closed at 0.998. The ECB’s official Philip Lane cited he expects ECB to continue rising interest rate over the “next several meeting” to anchor the inflation expectation and bring the price growth back to its target of 2%. We see the possibilities for the ECB’s key interest rates to be lifted by at least another 75bps for the remainder of the year.

British pound – The pound gained 0.40% to 1.154 as the UK inflation report showed lower annual growth at 9.9% y/y in August, below market expectation of 10.2% and lower than 40-year high reading of 10.1% back in July 2022. It marks the first slower inflation growth in 11 months, weighed by cooler motor fuel inflation. However, its core inflation, which excludes food, energy, alcohol, and tobacco, reached to a new record high of 6.3% y/y, slightly higher than 6.2% y/y in the prior month.

The Bank of England is set to announce its latest monetary policy decision next Thursday after a delay due to the death of Queen Elizabeth II. We now expect BoE to likely push rates up by 75bps instead of 50bps in a move to pull down inflation which should peak around 13.3% by end 2022.

Japanese yen – The yen strengthened 1.04% to 143.08 but remained around 24-year low level after the BoJ signalled for a possible intervention in the FX market. However, the market players are not convinced that the central bank will do the actual intervene to prompt up the yen.

Chinese yuan – The yuan weakened 0.38% to 6.962, almost reaching the more than two-year low. Amidst local economic slump, China’s Premier Li Keqiang pledged more support to shore up consumption and stabilize growth, employment and prices.

Korean won – The won plunged by 1.25% to 1,391, a level we have not seen since 2009 after the global financial crisis. Despite several warnings by authorities to calm the currency market, the won remained tilted towards the downside against the dollar play amidst aggressive rate hike campaign by the US Fed.

Australian dollar – The Australian dollar climbed 0.27% to 0.675. Report by the Housing Industry Association (HIA) showed that the new home sales sank 16.0% m/m in August, larger contraction compared to 13.1% decline in the prior month. Rising interest rates by the RBA and elevated construction costs pose downside risks for the property sector.

Commodities Highlights

Crude oil – Oil prices resumed its bullish trend as Brent gained 1.00% to US$94 per barrel while WTI soared 1.34% to US$88 per barrel. Oil supply concerns intensified as the International Energy Agency (IEA) expects that more countries will switch from gas to oil due to high prices throughout the upcoming winter.

Gold – The precious metal shed 0.28% to US$1,697/oz, weighed down by the prospect of more aggressive Fed’s rate hike and surging dollar.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened sharply by 0.44% to near its intraday low at 4.5275. This could be partly attributed to the dollar play which is poised to remain as the flavour in view of the Fed’s aggressive rate hike stand. Room for MYR to reach 4.55/4.58 is now on the cards.

KLSE – Tracking Wall Street performance in the prior session, the FBM KLCI fell 1.30% to 1,468. Detailed transaction showed that the local retailers were the sole buyers with RM70.1mil flow, offset by the net selling from local institutions and foreign investors of RM12.6mil and RM57.5mil flow, respectively.

Fixed income – The local bond market saw much weaker bids as the 3-year was +3.0bps to 3.380%, 5-year +4.0bps to 3.810%, 7-year +6.0bps to 4.000% and 10-year +6.5bps to 4.115%.

Rates – The IRS yield for the (3Y) was +4.5bps to 3.620%, (5Y) +5.0bps to 3.750%, (7Y) +4.0bps to 3.845%, and (10Y) +1.0bps to 4.000%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.500 and 4.510 while our resistance is pinned at 4.550 and 4.580.

Source: AmInvest Research - 15 Sept 2022