• Dollar eases for the second day straight

Global Highlights

Dollar Index – The dollar index stretched its downward trend for the second day as it fell 0.31% to 112.25 amidst the most pronounced buying of the pound and the yuan. The Fed officials also reiterated their calls for an aggressive tightening policy to tame down the stubborn inflation. The St. Louis Fed President Bullard stated that despite the spill overs from the UK’s recent events, it will not cause the Fed to pause the hike cycle. The stance is also in line with Cleveland Fed Chair Mester as she prefers to prioritize price stability over growth concerns.

On the data front, the number of new unemployment benefit claims dropped to 193k during the most recent week, down from 209k in the prior week, and the lowest level since April 2022 (cons.: 215k). Despite the rising lending rates, the data signals a tight labour market and perhaps points towards another rate hike by the Fed. The final estimation of US GDP was maintained at -0.6% q/q, unchanged from the previous estimation, while the core PCE prices was revised higher to 4.7% q/q from the previous 4.4% q/q.

US equities & sovereign bonds – Wall Street took another beating due to the tighter labour market indicator and more entrenched inflation. The Dow Jones fell 1.54% to 29,226, S&P500 dropped 2.11% to 3,640 while the Nasdaq sank 2.84% to 10,738.

The UST10Y benchmark yield added 5.4bps to 3.786%, and the UST2Y added 5.8bps to 4.192%, widening the inverted differential between the two to 40.7bps.

Euro – The euro surged 0.82% to 0.982. The ECB policymakers jumped into the wagon of tightening policy as more officials support for another jumbo rate hike during the upcoming meeting. This is in parallel with the preliminary inflation data in Germany which showed the consumer price grew 10% y/y in September, the highest on record and beating market forecast of 9.4% y/y, amidst energy crisis and persistent global supply chain bottlenecks. On another note, the consumer confidence indicator for the Euro area was confirmed at -28.8 during September, the lowest reading on record, much lower than previous month of -25.

British pound – The pound surged 2.09% to 1.112, away from the 1985-lows it hit earlier this week. The BoE intervened into the bond market to calm the market stress, buying £65 billion in long-dated bonds over the next two weeks. While on the short-term the sterling will be supported by the emergency action, it risks more towards the downside on the longer-term horizon due to the accommodative fiscal policies recently announced.

Japanese yen – The yen weakened slightly by 0.21% to 144.46. The government is mulling over steps needed to help consumer facing the rising electricity bills due to the higher prices on energy imports from a weak yen. The assistance may come in a form of cash pay-outs to both households and businesses.

Chinese yuan – The yuan made appreciated sharply by 1.05% to 7.125, following the PBoC’s warning against bet on one-sided appreciation or depreciation of the yuan. Investors considered the verbal warning as the central bank tolerance limit as the yuan hit 7.2 recently.

Korean won – The won also appreciated by 0.12% to 1,439. On the data front, the Business Survey Index for the manufacturing sector in South Korea fell to 75 in September, a level we have last seen in late 2020, as manufacturers are now getting more concern on economic slump induced by the rising interest rates.

Australian dollar – The Australian dollar edged lower by 0.34% to 0.650, erasing some gains it made during the previous session.

Commodities Highlights

Crude oil – Oil prices settled lower with Brent fell 0.93% to US$88 per barrel while WTI shed 1.12% to US$81 per barrel. Traders are more concerned with the worsening global economic prospect rather than the potential output cut during the next OPEC+ meeting on 5th October, which is next Wednesday.

Gold – Gold prices inched higher by 0.03% to US$1,661/oz following the sharp rebound in the previous session. The previous metal is on track to set the sixth straight months of decline, weighed by the expensive dollar and the rising interest yields.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened again by 0.23% to 4.640 and traded within the range of 4.6495 and 4.620. Data showed that Malaysia’s producer inflation rose 6.8% y/y in August 2022, much lower than the previous month reading of 7.6% y/y. it also marked the lowest level since March 2021 as the commodities prices and global supply chain disruptions start to recede as of recently.

We expect the MYR to trade between our support level of 4.610 and 4.620 while our resistance is pinned at 4.660 and 4.670.

KLSE – The FBM KLCI fell 0.31% to below 1,400 marks at 1,398, the lowest level since 2020. Detailed transactions showed that the foreign investors were the net sellers with RM149.5mil positions, offset by the local institutions and retailers buying flow of RM126.9mil and RM22.6mil, respectively.

Fixed income – The local bond market saw better bids as the 3-year was - 3.5bps to 3.800%, 5-year -6.0bps to 4.120%, 7-year -6.5bps to 4.370%, and 10- year -2.0bps to 4.450%.

Rates – The IRS yield for the 3-year -7.5bps to 3.840%, 5-year -6.5bps to 4.055%, 7-year -4.0bps to 4.190%, and 10-year -5.0bps to 4.380%.

Against major currencies – The ringgit was fell across the board as it was weaker against EUR, GBP, AUD, JPY, CNY, SGD, THB, IDR, and PHP, but stronger against the 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 4.660 and 4.670.

Source: AmInvest Research - 30 Sept 2022