• The Fed and the Bank of England to decide on monetary policy this week.

Global Highlights

Dollar Index – The dollar gained 0.02% to 109.764 and is expected to remain strong until the FOMC meeting this Thursday. We are now expecting a 75bps rate hike from previously 50bps following the strong economic data unveiled recently.

And we expect the Fed to maintain its rate hike policy this year. Thus, the policy rate is poised to settle at 3.75.% -4.00% by end-2022 — with a 50bps hike in November and 25bps hike in December.

Should inflation remain a menace to the Fed, a stronger rate hike is on our cards in December, where a 50bps could come into force as opposed to 25bps.Should that happen, the FFR will normalize at 4 00- 4.25% by end-2022.

US equities & sovereign bonds – Wall Street was on the downside end last week. Dow Jones lost 0.45% to 30,822, S&P 500 down 0.72% to 3,873 and Nasdaq plunged 0.90% to 11,448. The UST10Y benchmark yield rose by 0.05bps to settle at 3.449%, while the UST2Y was at 3.867% (+0.25 bps), bringing the differential between UST10 and UST2 to 41.77bps.

Euro – The euro closed higher by 0.15% to 1.002. We expect the Euro will continue to remain on the weakening trend this week ahead of the FOMC meeting with added pressure from the bleak outlook due to the energy crisis in the region. The €140bn energy proposals by the EU received mixed reception, where some energy industry players are still vague with the oil price cap mechanism.

British pound – The pound fell by 0.41% to 1.142 against the dollar due to dollar strengthening. The BOE is scheduled to meet this Thursday and we expect a 75bps rate hike in a move to address inflation. This would lift the interest rates to 2.50%. Recent inflation numbers cooled down, but the revision of the Ofgem is expected to push inflation to 13.3% based on the BOE’s estimates.

Japanese yen – The yen rose by 0.42% to 142.920 but is still on the weaker tone due to the stronger dollar. The recent gain showed that the BOJ was signalling that they could intervene the yen if it continues to weaken. So far, the yen depreciated to the same level as the 1998 Asian Financial Crisis.

Chinese yuan – The yuan gained by 0.42% to 6.987 as the market welcomes the news that Covid-19 restrictions will be selected in selected cities. On a macro front, industrial production and retail sales continued to remain resilient despite the lockdown, growing by 4.2% and 5.4% respectively.

Korean won – The won strengthened by 0.32% to 1,389.69 but still remained on the weaker side so far this year. Expect the won to be on the weaker note prior to the FOMC meeting this Thursday.

Australian dollar – The Aussie dollar gained by 0.21% to 0.672. The RBA governor has emphasized that the government needs to address the fiscal policy by improving the taxes to address the deep fiscal deficit.

Commodities Highlights

Crude oil – Brent was up 0.56% at US$91.35 per barrel, and WTI was up by 0.01% to US$85.11/barrel. Oil prices this week could come under pressure due to the expectation of the stronger dollar. Global weaker demand could also drive the oil prices to be lower.

Gold – Gold gained 0.60% to US$1,675/oz but is still at the lowest level throughout the month. Expect some weakening of gold prices as the dollar is expected to be strong this week.

Malaysia Highlights

Malaysian ringgit – The ringgit remained unchanged on Friday at 4.535. Friday was a public holiday due to Malaysia Day. We can expect the ringgit to be weak this week ahead of the FOMC meeting. We foresee the local currency to trade around 4.55 – 4.58 against the dollar. On a macro front, the CPI for August will be published this Friday. We expect inflation to accelerate to 4.8% from 4.4% in July 2022 driven by cost pressure and mismatch between supply and demand.

KLSE – The FBM KLCI was unchanged at 1,467 as the market was closed during Malaysia Day.

Fixed Income - The MGS 3y up by 3.0bps to 3.410%, 5Y up 6.0bps to 3.870%, 7y up 4.0bps to 4.040%, and 10yup 3.5bps to 4.150%.

Rates – The yield for the 3-year remained at 3.720%, 5-year remained at 3.835%, 7-year remained at 3.920%, and 10-year remained at 4.115%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.550 and 4.580 while our resistance is pinned at 4.600 and 4.650.

Source: AmInvest Research - 19 Sept 2022