• The Fed made 75bps rate hike. The BOE to follow later today.

Global Highlights

Dollar Index – The dollar gained by 0.44% to 110.215, continuing its rally throughout the week. As expected, the Fed raised the policy rate by 75bps to 3.00 – 3.25%.

More rate hikes are expected to come over the next two meetings in November and December. Inflation is envisaged to remain sticky. With that, the Fed’s door is left wide open for a fourth consecutive 75bps hike in November and 50 bps in December 2022. For December, we certainly cannot dismiss the possibility of a fifth 75bps hike.

Hence our baseline suggests that the Fed rates should settle at 4.25%-4.50% while the upside is at 4.50%-4.75% by end 2022.

US equities & sovereign bonds – Wall Street was on the downside due to the decision by the Fed. Dow Jones lost 1.01% to 30,706, S&P 500 down 1.15% to 3,855 and Nasdaq plunged 0.95% to 11,425. The UST10Y benchmark yield down by 3.31bps to settle at 3.530%, while the UST2Y was at 4.048% (+8.19 bps), bringing the differential between UST10 and UST2 to -51.85bps.

Euro – The euro closed lower by 1.87% to 0.9837 due to the stronger dollar. And market also reacted to Putin’s announcement that Russia will mobilise more manpower into Ukraine, wiping every chance of ending the conflict. The Euro now continues to trade at the lowest level in years.

British pound – The pound fell by 0.44% to 1.138 against the dollar due to dollar strengthening. The BOE is scheduled to meet later today, and we expect the central bank will follow the Fed’s footstep of raising its policy rate by 75bps in a move to address inflation. This would lift the interest rates to 2.50%.

Japanese yen – The yen depreciated by 0.38% to 143.75, trading at the same level as the 1998 Asian Financial Crisis. On YTD, the yen has depreciated by 25.4%.

Chinese yuan – The yuan fell by 0.19% to 7.018 due to the stronger dollar. The PBOC signals that the central bank has more room to ease its monetary policy, to address the weakening economy due to the zero-Covid policy and real estate crisis.

Korean won – The won strengthened by 0.32% to 1,389.69 but still remained on the weaker side so far this year. On the macro front, the South Korea’s exports for the first 20 days in September fell by 8.7%, reflecting slowing growth among trading partners.

Australian dollar – The Aussie dollar lost by 1.44% to 0.663 due to the stronger dollar. The RBA deputy governor has warned that the global economic outlook is not looking bright entering 2023 due to high inflation and tighter financial conditions.

Commodities Highlights

Crude oil – Brent was down 1.50% at US$90.62 per barrel, and WTI was down by 3.25% to US$82.94/barrel. Oil prices jumped temporarily by around 3% when Putin announced that Russia will send more troops into Ukraine, but the gain was offset by the Fed’s decision later.

Gold – Gold lost 0.12% to US$1,674/oz as market continues to flee into the dollar for safe haven. Expect gold prices continue to remain on the weaker side as the dollar is expected to be strong for remainder the week.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened by 0.19 to 4.559 due to the stronger dollar. Throughout the day, the ringgit was trading around 4.552 – 4.559, and the ringgit depreciated 9.3% ytd this year.

On the USD/MYR, there is still upwards pressure on the local currency. The aggressive monetary tightening by the Fed and complemented with the ongoing external headwinds should now see the local currency trade close to 4.60 against the USD.

Our initial view of the local currency retracing back towards 4.45 levels by end of 2022 could be tough. Hence, our outlook for the USD/MYR is now between 4.45-50 levels as the baseline with upside risk at 4.55-60.

KLSE – The FBM KLCI gained by 0.65% to 1,461. Detailed transaction showed that local institutions and local retails were net buyers of RM172mil and RM21.6mil respectively. Foreign investors were net sellers of RM193.6mil.

Fixed Income - The MGS 3y up by 4.0bps to 3.510%, 5Y up 5.0bps to 3.970%, 7y up 3.0bps to 4.140%, and 10y up 3.0bps to 4.222%.

Rates – The yield for the 3-year up 2.50bps to 3.785%, 5-year up 3.50bps to 3.975%, 7-year up 4.00bps to 4.000%, and 10-year up by 5.00bps 4.285%.

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

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 - 22 Sept 2022