• UK and Euro Area inflation increased to the highest level in years.

Global Highlights

Dollar Index – The dollar continued its upward trend for the second day, gaining by 0.76% and closing at 112.984 as several FOMC members, including James Bullard, open the idea of a 75bps rate hike in both November and December meetings if inflation does not fall as expected.

US equities & sovereign bonds – Wall Street was in the red zone, where Dow Jones lost 0.33% to 30,424, S&P500 down 0.67% to 3,695, and Nasdaq lost 0.85% to 10,681.

The UST10Y benchmark was up 12.690bps to 4.134%, and the UST2Y up by 12.770bps to 4.556%, bringing the yields differential between UST10 and UST2 to widen to -42.28bps.

Euro – The euro weakened by 0.86% to 0.977 due to the latest inflation numbers. Euro inflation shot up to 9.9% y/y in September, slightly below of the consensus expectation of 10.0% y/y, but higher than August’s 9.1% y/y. This will be the highest reading since the data was first collected in 1991.

Core inflation also accelerated from 4.3% y/y in Aug to 4.8% y/y in Sept.

The main impetus for the higher inflation was higher food prices, increasing to 13.8% y/y (Aug: 12.4%), and energy prices increased by 40.7% y/y (Aug: 38.6%).

With this latest development, we expect the ECB will opt for a larger rate hike in the upcoming meeting on 27th Oct. We now expect the ECB to hike by 75bps, in both October and December meetings, bringing the financing rate to 2.75% by the end of 2022.

British pound – UK inflation increased up to 10.1% in September, reaching double-digit for the first time since February 1982. This was slightly above of the consensus expectation of 10.0%.

The news did not go well among investors, as the GBPUSD dropped by 0.26% to trade around 1.1298 after the CPI publication. By the end of the day, the pound weakened by 0.89% to 1.122.

The GBPMYR also dropped from 5.3476, to 5.3340 after the CPI publication, translating to a 0.25% drop.

With recent prices accelerated, this will force the BOE to make another interest rates hike.

We expect the BOE to make another 50/75bps rate hike in the upcoming meeting on 3 November, and another 50/75bps rate hike in the final meeting in December. This will push the interest rates to 3.25-3.75% by end of the year.

Japanese yen – The Japanese yen continued its depreciating trend against the dollar, weakening by 0.43% to 149.900 against the dollar. The BOJ policymakers on Wednesday stressed the need to keep monetary policy accommodative to support the economy, ruling out the possibility of raising interest rates to counter the yen's weakening trend.

Chinese yuan – The yuan lost by 0.37% to 7.229, continuing its underperforming trend.

Korean won – The won depreciated by 0.27% to 1,426.46.

Australian dollar – The Aussie dollar weakened by 0.62% to 0.627, due to the stronger US dollar. The latest minutes from the RBA suggested that interest rates increase will continue until next year.

Commodities Highlights

Crude oil – Oil traded higher due to concern over tight supply. The price war between the US and OPEC+ continues, and President Biden recently approved the sale of 15mn barrels of oil to push prices lower. Brent ended the day 2.64% higher to $92.41/barrel, and WTI was up by 3.30% to US$85.55/barrel.

Gold – Gold down by 1.38% to US$1,629/oz, reflecting the stronger dollar.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened by 0.10% to 4.720 and traded within the 4.7150 - 4.7247 range throughout the day.

The external trade continued to show robust growth in September 2022. Overall trade increased by 31.4% y/y, bringing total trade to RM256.9 bn.

Exports grew robustly by 30.1y/y, bringing total exports to RM144.3 bn. But the growth was below of consensus expectation of 31.2%.

This brings the average export growth between January and September this year to 30.2%, above of our 24 - 25% forecast for this year.

Imports growth moderated from 67.3% y/y in August to 33.0% y/y in September 2022, bringing the total imports to RM971.3 bn.

With the latest trade numbers, growth for the 3Q22 will likely be higher than 2Q22 growth of 8.9%. Based on our preliminary estimates, the GDP growth rate for the 3Q22 could be around 12-14% (consensus: 10.5%).

KLSE – The FBM KLCI up 1.05%, to 1,415. Detailed transaction showed local institutions were net buyer of RM60.3mn. Local retails and foreign investors were net seller of RM6.3mn and RM54.0mn respectively.

Rates – The IRS yield for the 3-year up 4.00bps to 4.065%, 5-year up by 2.00bps to 4.255%, 7-year up by 3.00bps to 4.410%, and 10-year up by 3.00bps to 4.525%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.710 and 4.720 while our resistance is pinned at 4.725 and 4.735.

Source: AmInvest Research - 20 Oct 2022