• Fed minutes suggest rate hikes remain.

Global Highlights

Dollar Index – The dollar gained by 0.09 to 113.320, continuing its strengthening trend this week.

The effect of the Fed’s aggressive tightening is already affecting households, where the 30-year mortgage rates has reached to 16-year high of 6.81%. The mortgage rate will continue to creep higher, as the Fed is not done with its tightening cycle.

September inflation numbers will be released later today, where we view inflation will be at 8.1%. This will allow the Fed to further hike its policy rate by another 75bps in the upcoming meeting in November.

US equities & sovereign bonds – Wall Street was down due to the hawkish signal from the latest Fed’s minutes. The Dow Jones lost 0.10% to 29,211, S&P500 down 0.33% to 3,577, and Nasdaq down 0.09% to 10,417.

The UST10Y benchmark fell 5.080bps to 3.896%, and the UST2Y fell by 1.470bps to 4.291%, bringing the yields differential between UST10 and UST2 to widen to 39.49bps.

Euro – The euro fell by 0.05% to 0.970. On the macro front, the industrial production in the Euro Area rose by 1.5% in August (July: -2.3%), beating consensus expectations of 0.6%.

Despite the improvement, we view the trend is volatile, as more weakness can be expected moving towards 2023. We view that ECB has no reason to change tack in terms of its rate hike strategy. We expect ECB to hike the interest rates by 75bps in October and another 75bps in December to settle at 2.75% by end of the year.

British pound – The UK’s economy fell into a contraction in August, as the economy shrank by 0.3% due to the slowdown in the manufacturing sector. Prospects is not looking great either, as the BOE has said that they might not be continuing the long-term bond purchases beyond this Friday. The UK 10y gilt now yields at around 4.42%, the same level prior the intervention made by the BOE last week. Despite the negative news, the pound gained by 1.20% to 1.110.

Japanese yen – The Japanese yen hit a new 24-year low against the dollar on Wednesday, depreciating by 0.72% to 146.91 against the dollar. This will be the weakest level since the Asian Financial Crisis.

Speculation arises that the BOJ might intervene to support the currency. But BOJ Governor has emphasised that the central bank will continue its ultraloose policy to support the sluggish economic activity.

Chinese yuan – The yuan depreciated by 0.09% to 7.175, despite the bank lending improved to 11.2% y/y in September after the central bank slashed the key interest rates to spur an economy weakened in the wake of the zero-Covid policy and turmoil in the and real estate sector.

Korean won – The Bank of Korea upped interest rates by 50bps to 3.00%, and emphasised that more rate hikes can be expected in the future. The hike is a response to high inflation that is currently at 5.6% and the weak won (depreciated 19.6% ytd against the dollar). The won eventually gained by 0.76% to 1,424.64.

Australian dollar – The Australian gained by 0.10% to 0.628, after Reserve Bank of Australia (RBA) said that the neutral rate could be around 2.50%, but emphasised that the neutral rate is a moving target and could be revised depending on the situation. This further points to the view that the RBA is likely to push up the interest rates further in the future to fight against inflation, despite the slowing global economy and weak housing market.

Commodities Highlights

Crude oil – Oil prices fell, where Brent lost by 1.95% to $92.45/barrel, and WTI was down by 2.33% to US$87.27/barrel. Oil price is currently under pressure after the IMF has painted a bleak outlook on the economy heading into 2023. Despite OPEC+ announcement last week on the oil cut production, pushing brent to trade higher around US$95/barrel, oil prices continued to be on a downward trend this week.

Gold – Gold gained by 0.41 to US$1,673, but we expect the gain will be temporary prior to the US CPI data that will be published later today.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened by 0.22% to 4.684, and traded within the 4.6727 - 4.6860 range throughout the day.

On a macro front, the latest IP reading for August rose by 13.6% y/y from 12.5% y/y in July, beating consensus expectation of 9.5%. Distributive trade sales also grew by double-digit at 33.7% y/y. This suggests that 3Q22 GDP could grow by 9.5% -10.0% based on our preliminary estimates.

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.

KLSE – The FBM KLCI down 0.45%, to 1,381. Detailed transaction showed local institutions and local retails were net buyer of RM44.2mn and RM42.2mn respectively. Foreign investors were net seller of RM86.4mn.

Rates – The IRS yield for the 3-year down 2.50bps to 4.015%, 5-year down by 2.00bps to 4.225%, 7-year down by 1.00bps to 4.390%, and 10-year down 2.30bps to 4.557%.

Against major currencies – The ringgit was stronger against the JPY, but weaker against the EUR, GBP, AUD, 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 - 13 Oct 2022