• PMIs for the US, UK, and Euro are showing weaknesses.

Global Highlights

Dollar Index – The dollar weakened by 0.02 to 111.989, as latest PMI composite declined from 49.5 in September to 47.3 in October, further suggesting weaknesses in the economy. Survey showed that demand from trading partners fell due to higher input prices and weak sentiment among businesses in 4Q22 and early 2023.

US equities & sovereign bonds – Wall Street gained, where Dow Jones gained 1.34% to 31,500, S&P500 up 1.19% to 3,797 and Nasdaq gained 0.86% to 10,953. The UST10Y benchmark was up 2.570bps to 4.242%, and the UST2Y up by 3.230bps to 4.505%, bringing the yields differential between UST10 and UST2 to widen to -25.56bps.

Euro – The euro gained 0.12% to 0.987. Outlook for the Euro is on the downside, as the latest PMI manufacturing index declined from 48.4 in September to 47.8 in October, further suggesting the economy is heading for a recession. Despite the economic slowdown, we expect the ECB will opt for a larger rate hike in the upcoming meeting on Thursday to fight against inflation. We 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 – Rishi Sunak will be the next UK Prime Minister, and will continue to inherit economic issues including high inflation and rising cost of living. Prospect is not looking great either for the economy, as the S&P Global composite index fell from 49.5 in September to 47.1 in October, the lowest point since the Covid-19 outbreak. The pound weakened by 0.22% by end of the day to 1.128.

Japanese yen – The Japanese yen continued its depreciating trend against the dollar, weakening by 0.85% to 148.910 against the dollar. This is despite efforts by the government since Friday last week to avoid the yen from depreciating further.

Chinese yuan – The yuan lost by 0.45% to 7.263. China’s economy grew by 3.9% y/y in 3Q22, beating consensus expectation of 3.4% y/y and higher than the previous quarter of 0.4%. This was due to less stringent zero-Covid policy imposed by authorities, allowing selected sectors to operate in the third quarter.

Korean won – The won gained by 0.08% to 1,439.64 due to the stronger dollar.

Australian dollar – The Aussie dollar weakened by 1.05% to 0.631. The treasuries is expected to downgrade growth forecast based on the latest budget drafts. Growth for FY23-24 will be downgraded from 2.5% to 1.5%, and FY22-23 will be downgraded from 3.50% to 3.25%.

Source: AmInvest Research - 25 Oct 2022