• All eyes on the US Federal Reserve meeting

Global Highlights

Dollar Index – The greenback rebounded 0.44% to 110.21 as investors are bracing for another significant rate hike by the Fed later tonight. Some market participants are pricing for a 100bps hike. The 75bps rate hike is now seen as a done deal. On the data front, building permits in the US tumbled by 10% m/m to 1.52 million in August 2022 from the previous months 1.69 million and missing the market expectation of 1.61 million.

US equities & sovereign bonds – Wall Street closed in the red as the Dow Jones fell 1.01% to 30,706, the S&P500 lost 1.13% to 3,856 while the Nasdaq dropped 0.95% to 11,425.

The Treasury yields continued to march higher with UST10Y benchmark added 7.3bps to 3.563% while the UST2Y climbed 3.1bps to 3.967%, the highest reported since 2007, narrowing the inverted differential between the two to 40.4bps.

Euro – The euro shed 0.53% to fall below the parity level of 0.997. The ECB President Christine Lagarde emphasized on the central bank’s role in delivering price stability mandate. Following the euro area inflation rate which is at a record-breaking level at 9.1%, the ECB is expected to front load their rate hikes with the aim to bring the inflation target back to 2% and anchoring the inflation expectation.

On another note, German’s PPI failed to support euro. It surged 45.8% y/y in August, much higher than 37.2% y/y in July and market expectation of 37.1%

British pound – The pound remained bearish as it dipped 0.44% to 1.138, approaching to its lowest level since 1985. Amidst the energy price crisis, the British government plans to cut the wholesale energy prices for businesses this winter as part of the £150bn energy support package. This is in parallel with the cap on domestic households’ energy bill at £2,500 per annum over the next two years.

Japanese yen – The yen weakened again for the second straight session this week by 0.38% to 143.75 despite the stronger than expected inflation reading. Data showed that the consumer inflation in Japan climbed to 3.0% y/y in August from 2.6% in July, the highest level since September 2014, driven by higher food and transport inflation. Core consumer prices surged to 2.8% y/y, the fastest pace since 2014, from 2.4% in the previous month. Including this, the headline inflation rate has stayed above BoJ’s target of 2% for the fifth straight month.

Chinese yuan – Similarly, the Chinese yuan lost its ground again as it depreciated by 0.19% to 7.018. The PBoC on Tuesday has kept its 1-year loan prime rate, a key reference for corporate and household loans, unchanged at 3.65%. It also maintained the 5-year loan prime rate stable at 4.30% amidst the slide in yuan, almost reaching the 2020’s level.

Korean won – The won strengthened 0.27% to 1,390. Nevertheless, the currency remained overwhelmed by the dollar due to the aggressively hawkish Fed. The notion may continue to permeate the market after tonight’s Fed meeting.

Australian dollar – The Australian dollar tumbled 0.56% to 0.669. The RBA’s rate hike path may come to an end soon after the meeting record showed that the central bank cited interest rates are getting closer to “normal settings”. It also warned that it is not on a pre-set path given the uncertainties surrounding the outlook for inflation and growth.

Commodities Highlights

Crude oil – Oil prices trended on the downside tracking other risky assets. The Brent fell 1.50% to US$90 per barrel while WTI dropped 1.49% to US$84 per barrel ahead of the Fed meeting decision where the market is expecting another huge rate hike later tonight.

Gold – The precious metal is also in the red as it sank 0.65% to US$1,665/oz as the surging Treasury yield and strong dollar causing investors to move away from the gold.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened again by 0.19% to 4.559 and traded within the range of 4.559 and 4.5475.

KLSE – The FBM KLCI rose 0.66% to 1,461 with gainers seen mainly in transportation, construction, and technology. Detailed transactions showed that the foreign investors were the net sellers with RM10.2mil positions, offset by the local institutions and retailers with RM5.4mil and RM4.8mil buying flow, respectively.

Fixed income – The local bond market saw another selling streak as the 3-year was +3.0bps to 3.470%, 5-year +2.0bps to 3.920%, 7-year +5.5bps to 4.110% and 10-year +2.5bps to 4.196%.

Rates – The IRS yield for the (3Y) was +0.5bps to 3.760%, (5Y) +3.0bps to 3.940%, (7Y) +5.3bps to 4.075%, and (10Y) +8.5bps to 4.235%.

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

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 - 21 Sept 2022