• Dollar pauses its rally despite the still-hot inflation

Global Highlights

Dollar Index – The dollar index lost 0.84% to 112.36 despite US inflation data came in hotter than expected. Report showed that the US consumers price grew 8.2% y/y in September 2022, slower than August’s 8.3% y/y but faster than market’s forecast of 8.1%. Excluding food and energy, the core inflation climbed to 6.6% from 6.3% (cons.: 6.5%), the highest level since 1982.

On m/m basis, headline inflation rose 0.4% from 0.1% in August, while core inflation jumped 0.6%, the same pace as in August, pointing towards sustained inflation growth.

With the increase in the annual rate of core inflation, the Fed would continue its aggressive stances at the expense of inflicting the economic pain to get inflation moving back to the 2% target. The door for another 75bps Fed Funds rate increase in the next meeting due 1-2 November is widely open now.

US equities & sovereign bonds – Wall Street regained its ground across the board as the Dow Jones gained 2.83% to 30,039, S&P500 rose 2.60% to 3,670, while the Nasdaq surged 2.23% to 10,649.

The UST10Y benchmark yield added 4.7bps to settle at 3.944%, and the UST2Y added 17.2bps to 4.464%, widening the inverted yields differential between UST10 and UST2 to 52.0bps.

Euro – As the dollar weakened, the euro rose 0.75% to 0.978. Concerted hawkish tone by the ECB’s officials cemented the probability for another 75bps rate hike during this month’s meeting. Belgium central bank Chief Wunsch stated that he would not be surprised if the interest rate could reach above 3.00% by the end of this year, which translates to at least 175bps rate increase over the remainder of the policy meetings in 2022.

On the data front, Germany’s inflation was confirmed at 10.0% for the month September, the highest level since 1990s and above 7.9% y/y in August amidst the energy crisis.

British pound – The pound surged 2.04% to 1.133, taking advantage from the weaker dollar and as investors are preparing for the government U-turn on the recently announced tax cuts. The abandonment of the plan sent the pound surging and the 10-year benchmark gilt yield dropping by 23.6bps to 4.192%.

Japanese yen – The yen weakened 0.14% to 147.12, touching the weakest level since 1998. Amidst maintaining the yield curve control scheme (YCC) where the JGB 10-year yield is targeted to be below 0.25%, the tenor was traded for the first time in 5 days, the first such occasion since 1999. With the BoJ is now owns almost 70% of the 10-year of JGB, there is very little incentive for traders to trade the tenor in the market.

Chinese yuan – The yuan appreciated slightly by 0.07% to 7.170. The Chinese economy outlook remained dim as house sales and prices continue to be sluggish amid an economic slowdown and Covid Zero restraints. Consumer confidence is hovering around record low at 87 in August where the average between 2018 – 2020 is around 120. Recent central bank survey showed 73% of households expect property prices to stay unchanged or drop in the near future.

Korean won – The won also weakened 0.45% to 1,431, almost reaching the level last seen since 2009. Despite the recent rate hike by the BoK which brought the interest rate to 3,00%, the won continued to weaken as the global volatility heightens and gloomy economic outlook. The outflow of investments does not help either as data showed that foreign investors were the net sellers in the local stock markets throughout September and posting US$1.65 billion selling positions, a sharp swing from US$3.0 billion inflow in the previous month.

Australian dollar – The Australian dollar climbed 0.32% to 0.630, rebounding from the 2020’s level it reached earlier this week.

Commodities Highlights

Crude oil – Oil prices rebounded as low diesel inventory ahead of winter prompted traders to be bullish in oil market. Data showed that the distillate inventories which include heating oil and diesel dropped by 4.9 million barrels last week to 106.1 million barrels, the lowest level since May 2022. Brent soared 2.29% to US$94/barrel while WTI surged 2.11% to US$89/barrel.

Gold – Gold prices resumed its bearish trend by falling 0.41% to US$1,666/oz, erasing gains it made over the past two weeks. The previous metal will continue to be pressured by the rising yields and expensive dollar with 75bps rate hike expectation already baked in into our projections.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened 0.19% to 4.693 and traded within the range of 4.6932 and 4.6815. We expect the MYR to trade between our support level of 4.660 and 4.670 while our resistance is pinned at 4.700 and 4.710.

KLSE – The FBM KLCI fell 0.52% to 1,373, marking fourth straight days of falling. Detailed transactions showed that the foreign investors were the net sellers with RM153.7mil flow, offset by the local institutions and retailers net buying flow of RM131.5mil and RM22.2mil, respectively.

Fixed income – Ringgit bonds traded weaker, and sentiment remained cautious as the 3-year remained at 3.920%, while the 5-year +1.0bps to 4.220%, 7-year +3.0bps to 4.340%, and 10-year +3.0bps to 4.450%.

Rates – The IRS yield for the (3Y) +1.5bps to 4.030%, (5Y) +1.5bps to 4.240%, and (10Y) -1.7bps to 4.540%. The (7Y) remained at 4.390%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.660 and 4.670 while our resistance is pinned at 4.700 and 4.710.

Source: AmInvest Research - 14 Oct 2022