• Dollar play continue to permeate the market

Global Highlights

Dollar Index – By the end of last week, the greenback surged 1.65% to above 113 at 113.192, the highest level since 2002, taking cue from the aggressively hawkish Fed as investors are pricing in similar large rate hike during the remaining meeting for 2022. Following the US Fed’s 75 bps rate hike and Fed’s Chair view that they are prepared to sacrifice growth and jobs to ensure inflation comes back to target, we should hear more testimony from the other Fed officials this week.

This week, there is not much to begin with. Our focus will be on the housing numbers. House prices fell by 5% from its peak in May has more downside risk by 15%-20%. High inflation and rising borrowing costs will weigh on the housing market. Potential buyers are expected to pull back on spending.

US equities & sovereign bonds – Wall Street was deep in the red as the Dow Jones dropped 1.62% to below 30,000 marks at 29,590, S&P500 sank 1.72% to 3,693, while Nasdaq sank 1.80% to 10,868.

The UST10Y benchmark yield was down 2.920bps to settle at 3.685%, while the UST2Y was at 4.201%, bringing the differential between UST10 and UST2 to -51.65bps.

Euro – The euro shed 1.51% to 0.969, weakening further below the parity level. Timely data showed that the business activity contracted further recently. The Preliminary September S&P Composite PMI for the euro zone stated that the headline reading fell to 48.2, down from 48.9 in August, marking the third consecutive month activity contraction. Both manufacturing and services extended the decline. Inflation and employment data will be the main focus in the eurozone this week. We expect the inflation is to stay high and unemployment to hover around 6.6% - 6.7%

British pound – The pound took a severe wound as it tumbled by more than 3.57% to 1.086, a new low since 1985 following government’s announcement to for massive tax cuts in order to boost economic growth. The government estimates that the tax cuts will total £45 billion by 2026, but the plan received mostly negative reaction by investors as the public debt levels mounting.

Japanese yen – The yen depreciated 0.65% to 143.31 following the authority’s intervention during the previous session. Last week, the BoJ maintained its dovish stance, keeping its interest rate at -0.10%, causing the yen to hit 146- level briefly.

Chinese yuan – The yuan depreciated sharply by 0.71% to 7.128, due to surging dollars. As the PBoC left its key interest rates unchanged last week, the Fed opted in for another jumbo rate hike, widening the stances between the two. A grim outlook also weighed on China’s currency, as authorities are expected to stick to its Zero-Covid policy next year.

Korean won – The won appreciated 0.22% to 1,409.73, the weakest level since 2009. South Korea's finance minister said the government would prepare more measures to stabilise the foreign exchange market amidst the sinking won.

Australian dollar – The Australian dollar tumbled 1.76% to 0.653.RBA’s Deputy Governor Michele Bullock reiterated that the central bank was looking for opportunities to slow the pace of rate hikes at some point as the central bank deemed that the cash rate is getting closer to “normal” settings.

Commodities Highlights

Crude oil – Oil prices sank as the Brent dropped 4.76% to US$86.15 per barrel while WTI fell 5.69% to US$78.74 per barrel as recession fears intensified in the market following the aggressive rate hike path by the Fed.

Gold – Gold priced fell 1.63% to US$1,644/oz, the lowest in two years, outweighed by the rising yields and more expensive dollar.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened 0.24% to 4.579 and traded within the range of 4.5798 and 4.567. Malaysia’s inflation numbers for August were at 4.7%, which is equivalent to 0.2% on a month-on-month, the slowest pace in four months. This brings inflation year to date to 3.0%. We revise our inflation outlook to 3.6% this year, with an upside surprise of 3.8% and downside of 3.2%.

KLSE – The FBM KLCI slipped 0.99%, to 1,425. Detailed transactions showed that the foreign investors were the net sellers with RM218.0mil, being offset by the local institutions and retailers buying flow of RM147.9mil and RM70.1mil, respectively.

Fixed Income - The MGS 3y up by 12.0bps to 3.680%, 5Y up 10.0bps to 4.120%, 7y up 7.0bps to 4.300%, and 10y up by 4.340%.

Rates – The IRS yield for the 3-year up 5.50bps to 3.940%, 5-year up 8.70bps to 4.150%, 7-year up 5.00bps to 4.250%, and 10-year up by 5.00bps 4.410%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.580 and 4.600 while our resistance is pinned at 4.610 and 4.650.

Source: AmInvest Research - 26 Sept 2022