• Liz Truss resigns as UK’s PM after six weeks being appointed

Global Highlights

Dollar Index – After two days of rising, the dollar index eased 0.09% to 112.88. Some forward guidance has been provided by Fed’s officials this time as Philadelphia Fed President Harker signalled imminent rate hikes to reach above 4.0% by the end of 2022. This is almost in line with official’s projection where the Federal Open Market Committee in September forecast raising rates to 4.5%-4.75% in 2023. He also expects the aggressive rate hike will end in 2023 and could pause based on the incoming data. We reiterate our view that the Fed Funds rate will be increased by 75bps in November and December meeting, and a final 25bps in January 2023 to push the rate to 4.50% - 4.75%, and the first rate cut could come in 2H23.

According to the Fed’s Beige Book, the national economic activity expanded modestly on net basis with varied conditions across industries and Districts. Some Districts are already seeing flat and decline activities due to the slowing or weak demand induced by the high interest rates, elevated inflation and supply disruptions.

US equities & sovereign bonds – Wall Street closed in the red after it pared its early gains taking cue from the Fed’s hawkish stance. The Dow Jones fell 0.30% to 30,334, S&P500 lost 0.80% to 3,666, while the Nasdaq dropped 0.61% to 10,615.

The UST10Y benchmark added 9.5bps to 4.228%, and the UST2Y climbed 5.4bps to 4.610%, narrowing the inverted differentials between the two to 38.2bps.

Euro – The euro gained 0.13% to 0.979 as the market is pricing in another 75bps rate increase during the upcoming ECB meeting in 27th October. This is in line with our view. On the macro front, the Euro Area posted the fifth straight months of current account deficit. The deficit widened to €20.2bn for the month of August from €8.6bn in July and much lower than €21.1 surplus in the same month in 2021 amidst all-time high imports and energy crisis.

British pound – The British pound rose 0.14% to 1.124 following the resignation of UK’s PM Liz Truss, just six weeks after she was appointed. Her economic programme including the energy bill cap have caused the market to react negatively while losing the support of her Conservative Party. The next leadership election will be completed within next week.

Japanese yen – The Japanese yen weakened 0.17% to more than 30-year low at 150.15, increasing the possibility of another yen intervention by the Japanese government. The BoJ, meanwhile, conducted emergency bond buying operations as it offered to buy ¥250bn of JGB with 5-25 years or more maturities.

Chinese yuan – The yuan closed at 7.215 or 0.20% stronger compared to the previous session. The slight rally was induced by the possibility of China to ease its Covid-19 restrictions relating to people arriving in the country as the country becomes more isolated with other global economies. On another note, the PBoC has maintained both the one-year loan prime rate (LPR), used for business and household loans, and the five-year rate, used as a reference for mortgages, at their previous levels of 3.65% and 4.3%, respectively. The Loan Prime Rate 5Y in China has remained constant since September.

Korean won – The won depreciated 0.41% to trade around 1,432. Due to the spike in interest rates, the Financial Service Commission stated that the plan of tightening banks’ liquidity requirement will be delayed by six months, citing that sign of stress in short-term money market are emerging. The plan is to raise the Liquidity Coverage Ratio (LCR) to 95% from pandemic lows of 92.5% will start from the beginning of January 2023.

Australian dollar – The Australian dollar climbed 0.18% to 0.628. The number of employments increased by a mere 900 in September, much lower than August’s 36.3k and market forecast of 25k despite the unemployment rate remaining steady from the previous month at 3.5%. The subdued employment uptick may indicate an early sign of elevated interest rate effects on labour market.

Commodities Highlights

Crude oil – Oil price closed almost flat amidst whipsaw trading session. Concerns over an imminent recession and subdued oil demand outweighed the prospect of revisions on Covid rule regarding foreign visitors in China. Brent edged lower by 0.03% to US$92/barrel while WTI climbed 0.50% to US$86/barrel.

Gold – Gold dipped 0.09% to around April 2020’s level of US$1,628/oz. The precious metal has been on the losing side when the Fed started to increase the Fed Funds Rate aggressively and dollar rallied to multi year highs.

Malaysia Highlights

Malaysian ringgit – The ringgit depreciated by 0.17% to 4.728, resuming the bearish trend after the slight relief last Tuesday and traded within the range of 4.730 and 4.7203. The local currency’s prospect remained dim due to the political uncertainties. Malaysians will vote on 19th November amidst monsoon season — GE15. We expect the MYR to trade between our support level of 4.710 and 4.720 while our resistance is pinned at 4.740 and 4.750.

KLSE – The FBM KLCI surged 1.60%, to 1,1,438, marking the fifth straight sessions of rallying. Detailed transaction showed that local institutions were the net buyers with RM 120.5mil flow, offset by the local retailers’ and foreign investors’ net selling flow of RM37.1mil and RM83.4mil, respectively.

Rates – The IRS yield for the (3Y) +5.0bps to 4.115%, (5Y) +6.0bps to 4.315%, (7Y) +7.0bps to 4.480%, and (10Y) +8.5bps to 4.610%.

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

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 4.740 and 4.750.

Source: AmInvest Research - 21 Oct 2022