• Pound sell-off continues after BoE’s governor comments

Global Highlights

Dollar Index – The dollar gained 0.07% to 113.22, rallying for the fifth straight sessions as the US economy is seen still strong compared to other countries following the better-than-expected labour market data released last Friday. Another hint of hawkish comment by Cleveland Fed President Mester also has supported the dollar. She said that officials need to keep raising interest rates in order to put inflation on a sustainable downward path to 2.0%.

US equities & sovereign bonds – Wall Street was mixed as the Dow Jones gained slightly by 0.12% to 29,239, but the S&P500 fell 0.65% to 3,589, while the Nasdaq dropped 1.10% to 10,426

The UST10Y benchmark rose 6.6bps to 3.947%, and the UST2Y lost 0.2bps to 4.306%, narrowing the inverted differential between the two to 35.9bps.

Euro – The euro inched higher by 0.06% to 0.971, moving towards the 20-year low it hit last month. In tandem with the downgrade of global growth forecast to 2.7% from 2.9% for 2023, the IMF has also downgraded euro area’s growth forecast to 0.5% from the previous 1.2% in 2023, weighed by the war in Ukraine, surging inflation and persistent Covid-19 pandemic impact.

British pound – The pound tumbled 0.79% to 1.097, erasing the gains it made recently, taking cue from the BoE’s Governor Bailey statement saying that the central bank will stop buying the long-dated gilt by the end of the week, urging UK’s pension funds to rebalance their portfolio by Friday. The BoE has step into the gilt market to bring calm by buying bonds including inflation-linked bonds. On Tuesday, the central bank has already bought £1.95bn of inflationlinked debt, about half the maximum amount it said it would be willing to buy.

Japanese yen – The yen weakened 0.10% to 145.86, near the psychological level of BoJ’s intervention. On another note, Japan finally lifted its international borsers to tourists after two-and-a-half years of Covid restrictions. Authorities are banking on the inflow of travellers enticed by a weak yen will boost the domestic economy. At the same time, it is also lifting the limit on the number of arrivals and ending the package tour requirement.

Chinese yuan – The yuan weakened 0.19% to 7.169. China’s central bank has signalled "verbal intervention" as the PBoC voiced out against big currency whipsaw and will take steps to keep the yuan stable. On YTD, the yuan has slumped by more than 11%, weighed down by US monetary tightening, China’s economic slowdown and capital outflows.

Korean won – The won also depreciated by 0.61% to 1,436, as a result of the stronger dollar. The Bank of Korea is set to pivot back to another big interestrate increase as it seeks to keep pace with the Federal Reserve and rein in inflationary pressures exacerbated by a weaker currency.

The central bank is expected to raise its key rate by a larger-than-regular 50bps to 3.00% at Wednesday’s meeting despite having dialled back its pace of tightening in August.

Australian dollar – The Australian dollar slid 0.49% to 0.627. Data showed that the consumer sentiment in Australia fell to 83.7 in October, hovering near historic lows as households continue to struggle with surging living costs and elevated interest rates. Another report pointed the falling of business confidence index to 5 in September, the lowest reading since June, affected by gloomy economic outlook induced by the restrictive lending rates.

Commodities Highlights

Crude oil – Oil prices settled lower, extending the previous session’s decline as recession fears and a spike in China’s COVID-19 cases raised concerns over global demand. Brent tumbled 1.98% to US$94/barrel while WTI dropped 1.95% to US$89/barrel.

Gold – Gold price continued its downward trend for the fifth straight days as the stronger-than-expected US jobs data bolster the Fed’s hawkish bet.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened sharply by 0.50% to 4.673 and traded within the range of 4.6742 and 4.6485. The unemployment rate in Malaysia remained stable at 3.7% for the month of August 2022, down from the pandemic peak of 5.3% back in May 2020 as the economy recovers.

For today, we expect the MYR to trade between our support level of 4.650 and 4.660 while our resistance is pinned at 4.690 and 4.700.

Fixed income – The local bond market saw another weaker bid as the 3-year was +5.0bps to 3.920%, 5-year +10.0bps to 4.210%, 7-year +9.0bps to 4.320%, and 10-year +4.0bps to 4.430%.

KLSE – The FBM KLCI traded lower 1.36% to 1,387. Detailed transactions showed that the foreign investors were the net sellers with RM140.3mil positions, offset by the net buying flow from local institutions and retailers at RM81.2mil and RM59.1mil, respectively.

Rates – The IRS yield for the (3Y) +9.0bps to 4.040%, (5Y) +8.5bps to 4.245%, (7Y) +10.0bps to 4.400%, and (10Y) +3.0bps to 4.580%.

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

Ringgit Outlook for the Day

we expect the MYR to trade between our support level of 4.650 and 4.660 while our resistance is pinned at 4.690 and 4.700.

Source: AmInvest Research - 12 Oct 2022