• Yen takes hit as BoJ stays ultra-dovish

Global Highlights

Dollar Index – The dollar index ended the week on firmer note as it rose 0.15% to 110.75 as the bets for 75bps rate hike move for November’s meeting is already baked in. The data showed that the personal consumption expenditure (PCE) price index rose 6.2% y/y in September, the same pace as it was in August, and signalling that inflation in the US is still hot.

Also, the personal spending grew 0.6% m/m in September, much faster than 0.4% market forecast but the personal income only grew 0.4% m/m (cons.: 0.3% m/m)

US equities & sovereign bonds – Wall Street was traded in the green as the Dow Jones surged 2.59% to 32,862, S&P500 climbed 2.46% to 3,901, and Nasdaq soared 2.87% to 11,102.

The UST10Y benchmark rebounded 9.4bps to 4.012% while the UST2Y regained 14.0bps to 4.414%, widening the inverted differential between the two to 40.2bps.

Euro – The euro was relatively unchanged as it traded around 0.997 and following the slight dovish tone the ECB made during its decision last week. On the data front, the economic sentiment indicator in the region showed the eighth straight months of falling as it edged down to 92.5 in October, the lowest level since November 2020. Factors such as deteriorating economic outlook, high inflation and high lending costs have hit sentiment among businesses including both manufacturers and service providers.

British pound – The British pound inched higher by 0.43% to 1.162. The focus this week will be on the BoE’s meeting to decide on its monetary policy. The inflation situation is worse than the US as its annual inflation rate rose 10.1% in September, the same pace as the 40-year high it hit back in July and beating market forecast of 10%. Expectations are that the central will raise its key interest rate by 75bps to 3.00% but the card for smaller hike 50bps is still in play.

Japanese yen – The Japanese yen took a hit as it depreciated 0.90% to 147.60 after the BoJ’s meeting. The central decided to stick to its super accommodative as it maintained its key short-term interest rate at -0.1% and the target for 10-year bond yields around 0.00%. But the growth forecast for 2022 has been cut to 2.0% from 2.4% while the inflation projection was revised higher to 2.9% from 2.3%. The yen fell as much as 1.07% in the aftermath of the BoJ’s decision.

Chinese yuan – The yuan weakened 0.32% to 7.252, marking the 2nd straight day of depreciating trend. The PBoC is now facing with a tough challenge as it has already cycled through with most of its policy tools in ramping up yuan after multiple months of effort intervening in the market. The policy tools include a one-time revaluation and restricting the yuan’s trading range are among the major tools.

Korean won – The won also depreciated by 0.23% to 1,422. The government has declared national mourning period that will run until Saturday following a Halloween tragedy which costs 150 lives at least.

Australian dollar – The Australian dollar fell 0.69% to 0.641. The producer price inflation for 3Q22 surged to 6.4% from 5.6% in the previous quarter, a signal which can pressure the RBA to take larger rate hike this week. Although, we are expecting the central bank to stick to 25bps increase tomorrow.

Commodities Highlights

Crude oil – Oil price eased as China widens the Covid curbs to include Guangzhou, Wuhan, and Xinjiang. Brent fell 1.23% to US$95 per barrel while WTI dropped 1.32% to US$87 per barrel

Gold – Gold sank 1.11% to US$1,645/oz as the focus has shifted towards the FOMC meeting decision due on 2nd November.

Malaysia Highlights

Malaysian ringgit – The ringgit depreciated 0.17% to 4.725 and traded within the range of 4.727 and 4.7153. Malaysia’s PPI grew by a mere 4.9% y/y in September, slowing significantly from 6.8% y/y in the previous month and registering the slowest producer inflation growth since February 2021. The softer rise was due to the softer components including manufacturing, mining, and agriculture, forestry & fishing.

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 fell for the second day by 0.47% to 1,447. Detailed transactions showed that the local institutions were the net sellers with RM61.9mil positions, being offset by the local retailers with RM28.4 and foreign investors with RM33.6mil positions.

Fixed income – The local bond market saw mixed movements as the 3-year - 4.5bps to 3.810%, 5-year -3.0bps to 4.180%, 7-year +5.0bps to 4.310%, and 10- year +7.0bps to 4.450%.

Rates – The IRS yield for the (3Y) -5.5bps to 3.955%, (5Y) -6.7bps to 4.130%, (7Y) -5.9bps to 4.260%, and (10Y) -5.0bps to 4.380%.

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

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 - 31 Oct 2022