• Dollar index rebounds as risk-on mode recovers

Global Highlights

Dollar Index – The dollar index slightly rebounded by 0.08% to 112.13 as investors sentiment continues to recover. Data showed that the US output is still holding well despite the rising recession worries.

US production at factories rose in September led by output gains in both durable and nondurable goods. Manufacturing output rose 0.4% in September, keeping pace with an upwardly revised 0.4% gain in August. And capacity utilisation, a measure of how fully producers are using their resources, rose to 80.3% in September from an upwardly revised 80.1% in August. The latest data indicates the manufacturing sector remains on reasonable footing despite the Fed’s efforts to hamper demand through higher interest rates.

US equities & sovereign bonds – Wall Street rallied for the second straight days as the risk mode among investors recovered thanks to upside surprise of some earnings result amidst economic gloom. The Dow Jones climbed 1.12% to 30,524, S&P500 climbed 1.14% to 3,720, while the Nasdaq edged higher by 0.90% to 10,772.

The UST10Y benchmark added 0.4bps to 4.007%, and the UST2Y fell 1.5bps to 4.429%, narrowing the inverted differentials between the two to 42.2bps.

Euro – The euro inched higher by 0.17% to 0.986, partially supported by the hawkish sentiments communicated by multiple ECB officials. Ireland central bank’s governor Makhlouf stated that despite the risks of recession, it is critical for the ECB to increase its rates to deal with high inflation as it is damaging the economy and stability. On another note, the EU is mulling for a new measure to prevent excessive gas prices, which can have positive implications for households.

On the data front, the Economic Sentiment indicator for the Euro Area recovered slightly to -59.7 in October, from September's 14-year low of -60.7 (cons.: -61.2). Still, concerns continued about the economic outlook amid heightened recession risks.

British pound – The British pound eased 0.33% to 1.132. Volatility in the gilt market continues as the BoE denied a report saying that the central will delay the bond sales scheduled on 31st Oct after having already pushed back from 6th Oct. The scheme is to sell some of its £838bn of government bond holdings starting from the revised date.

Japanese yen – The Japanese yen weakened 0.15% to trade around 149.26, a fresh 32-year low and marking the 10th straight days of falling despite some risk-on mode in the market. Resulting from the sinking yen, the finance minister Suzuki warned that authorities could take decisive intervention and would do so without any announcement. But he did not disclose whether the yen may have been supported without the public’s knowledge.

Chinese yuan – The yuan lost 0.08% to 7.202, around a level last seen in 2008. The Party Work Report, released concurrently with the 20th Party Congress in China, is emphasizing that technological advancement, national security, and rural development will be the focus of economic development policies this time around, echoing the which echoes the technology war imposed by the US through the enactment of Chips and Science act.

Korean won – The won strengthened 0.88% to 1,423. Amidst deepening global energy crisis, South Korea is putting a limit on temperature levels to below 17 degrees Celsius until the end of March 2022 in public buildings this winter to trim electricity consumption.

Australian dollar – The Australian dollar bounced back 0.29% to 0.631 following the release of 4th Oct meeting minutes. The RBA’s board members “recognized the benefits of smaller increase” as the cash rate has been increased substantially over a short period of time and the effects will be seen in the coming months. The surprise move of 25bps hike to 2.60% marked the sixth consecutive hike in its tightening cycle to tame the inflation rates. The future rate hike will be data-driven, and the central bank has more flexibility of the size and timing for rate increases as it holds more meeting compared to its counterparts.

Commodities Highlights

Crude oil – Oil prices went down as the outlook of economic slowdown, slowing China’s demand and US supplies are weighing on the oil market. Brent fell 1.74% to US$90/barrel while WTI lost 3.09% to US$82/oz.

Gold – Gold gained 0.13% to US$1,652/oz as it benefitted from a weakening dollar, as strong earnings on Wall Street boosted risk appetite.

Malaysia Highlights

Malaysian ringgit – The ringgit strengthened 0.03% to 4.716, snapping its 7th consecutive days of bearish trend and traded within the range of 4.7207 and 4.712. Malaysia’s Finance Minister stated that the government has agreed to implement the “two-pillar approach” in taxation in 2024 to create a competitive environment for both foreign and domestic direct investment and also prevents cross-border tax evasion.

We expect the MYR to trade between our support level of 4.700 and 4.710 while our resistance is pinned at 4.720 and 4.730.

KLSE – The FBM KLCI rose 1.02% to 1,400. Detailed transaction showed local institutions were the net sellers with RM105.7mil, offset by the buying flow from local retailers and foreign investors of RM3.1mil and RM102.6mil, respectively.

Rates – The IRS yield for the 3-year +1.0bps to 4.025%, 5-year +15bps to 4.235%, 7-year remained at 4.380%, and 10-year +1.0bps to 4.495%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.700 and 4.710 while our resistance is pinned at 4.720 and 4.730.

Source: AmInvest Research - 19 Oct 2022