• BoE steps into the bond market to calm the chaos

Global Highlights

Dollar Index – The dollar eased 1.32% to 112.60, coming off from the 20-year high it hit recently attributed to some profit taking activities. But the greenback will remain supported by the hawkish sentiments by the Fed’s officials. The Atlanta Fed President Bostic said that the lack of progression of easing inflation means that the federal funds rate (FFR) needs to be “moderately restrictive” of around 4.25% - 4.50% this year and supporting for 75bps hike in November and 50bps hike in December.

On the data front, pending home sales in the US declined by 2.0% m/m in August, larger than 0.6% decline in July and market forecast of -1.4% m/m. Excluding the slight rebound in May data, the index has been falling for the ninth consecutive months since November last year amidst surging mortgage rates.

US equities & sovereign bonds – Wall Street shot up, in parallel with easing Treasury yields. The Dow Jones climbed 1.88% to 29,684, S&P500 rose 1.97% to 3,719 and Nasdaq surged 2.05% to 11,052.

The UST10Y benchmark yield lost 21.4bps to 3.731%, and the UST2Y reduced 14.8bps to 4.135%, widening the inverted differential between the two to 40.4bps.

Euro – The euro soared 1.47% to 0.974, taking cue from the weaker dollar. Amidst Fed’s steep tightening path, ECB’s officials signalled the same to combat the high inflation situation. Slovak Central Bank governor Kazimir endorsed for another75bps in October meeting depending on the fresh data, while Finnish Central Bank chief Rehn also said that the 75bps hike is certainly possible.

British pound – The pound also recovered some losses as it gained 1.45% to 1.089 following the BoE’s announcement to conduct temporary buying longdated bonds in order to calm the market. Investors were fleeing from the British fixed income market after the announcement of the new fiscal policy involving energy price cap measure and tax cuts.

Japanese yen – The yen strengthened slightly by 0.44% to 144.16. According to the July’s BoJ meeting minutes, the members agreed that it is needed to watch closely on the FX market amidst multi-year low against the USD.

Chinese yuan – The yuan although, weakened 0.34% to 7.201, the weakest level since the Global Financial Crisis in 2008. The PBoC has set stronger yuan fixing than the Bloomberg survey, but it was the smallest since 13th Sept, a sign that the market seen as the easing of support by Beijing.

Korean won – The won also depreciated by 1.27% to 1,441, the lowest level since Feb 2009. The BoK and South Korea’s government stated that they will carry out government bonds buyback later this week to tackle the soaring yields with a combination of 5 trillion won (US$3.5 billion).

Australian dollar – The Australian dollar meanwhile, jumped 1.35% to 0.652. Report showed that the retail sales climbed 0.6% m/m to a new record high of AUD34.9 billion in August, beating market forecast of 0.4% m/m growth. This marked the 8th straight months of expansion.

Commodities Highlights

Crude oil – Oil prices rose for the second day as Brent soared 3.54% to US$89 per barrel, while WTI surged 4.65% to US$82 per barrel as data showed largerthan-expected inventory drawdown and rebounding Chinese consumer demand.

Gold – Gold prices rose 1.91% to US$1,660/oz, taking cue from the weakened dollar.

Malaysia Highlights

Malaysian ringgit – The ringgit continued to fall as it closed at 4.630, a 0.41% weaker compared to the previous session and traded within the range of 4.6305 and 4.6108.

We expect the MYR to trade between our support level of 4.610 and 4.620 while our resistance is pinned at 4.650 and 4.660.

KLSE – The FBM KLCI fell 0.64% to 1,402. Detailed transactions showed that the foreign investors were the net sellers with RM202.9mil, offset by the local institutions and retailers at RM177.3mil and RM25.6mil, respectively.

Fixed income – The local bond market saw a reversal from the previous session’s gains as the 3-year was +4.5bps to 3.835%, 7-year +5.5bps to 4.435%, and 10-year +3.0bps to 4.470%. The 5-year was unchanged at 4.180%

Rates – The IRS yield for the 3-year -2.5bps to 3.945%, 5-year -3.0bps to 4.120%, 7-year +2.5bps to 4.230%, and 10-year -11.0bps to 4.460%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.610 and 4.620 while our resistance is pinned at 4.650 and 4.660.

Source: AmInvest Research - 29 Sept 2022