• Dollar outperforms as Fed’s hike cycle is in the focus ahead of the FOMC meeting

Global Highlights

Dollar Index – The dollar index started the week in green as it rose 0.70% to 111.53 ahead of the FOMC meeting decision. It was supported by the expectations of another 75bps rate hike.

But the potential outcome of the dollar depends on the Fed’s hawkishness stand. If there are signs of easing, we can expect December rate hike to be around 50 bps.

US equities & sovereign bonds – Wall Street was traded in the red as the Dow Jones edged lower by 0.39 % to 32,733, S&P500 fell 0.75% to 3,872, and Nasdaq dropped 1.03% to 10,988.

The UST10Y benchmark added 3.5bps to 4.048% while the UST2Y added 6.8bps to 4.482%, widening the inverted differential between the two to 43.5bps.

Euro – The euro registered three straight days of depreciation. It fell by 0.83% to below parity at 0.988.

The economic data showed inflation rate in Euro area accelerated to 10.7% y/y in October 2022, setting another new record high, up from 9.9% y/y in September and beating market expectation of 10.2%. The runaway inflation was driven mostly by the increase in energy, followed by food, alcohol & tobacco, and non-energy industrial goods.

On monthly basis, the same headline index jumped 1.5% m/m, faster than 1.2% m/m in the previous month. Excluding prices for energy, food, and tobacco, core inflation rate also breaks another record as it up ticked to 5.0% y/y from 4.8%. The red-hot inflation may prompt the ECB to act more aggressively to tame inflation but the benefit for the currency is limited as long as the Fed maintains the same hawkishness tone.

On another note, initial estimates showed the region’s GDP expanded 0.2% q/q (or 2.1% y/y) in 3Q22, in line with market consensus but slightly slower 2Q22 of 0.8% q/q (or 4.3% y/y) as the economy is being ravaged by the record breaking inflation and more restrictive lending conditions. While the data shows that the 19-member bloc has dodged a recession, but an economic slowdown is evident moving forward.

British pound – The pound sank 1.26% to 1.147 despite forecast of another 75bps rate hike by the BoE later this week as well. The UK’s lending figure points toward slowing economy as the consumer credit rose only by £0.745bn in September, slower than £1.22bn in August and falling short from market consensus of £0.978bn. Also, the number of mortgage approvals fell to 66.8k from 74.4k (cons.: 67k).

Japanese yen – The Japanese treaded on weaker path again as it weakened 0.75% to 148.71. After increasing by 3.4% m/m in August, industrial production in Japan fell 1.6% m/m in October 2022, the first monthly fall since May. On yearly basis, industrial production increased by 9.8% in September, up sharply from August's 5.8% increase.

Retail sales in Japan climbed 4.5% y/y in September2022, which was higher than the market forecast of 4.1%, and marked the seventh consecutive month of growth as consumption rebounded in the wake of COVID-19.

Another report showed that the consumer confidence index in Japan declined to 29.9 in October 2022, the lowest level since August 2020, as a result of rising cost of living and global challenges.

Chinese yuan – The yuan depreciated sharply by 0.73% to 7.305 as investors taking cue from the weak economic data. The official NBS Manufacturing PMI dipped unexpectedly to 49.2 in October 2022 from 50.1 in September, below market forecasts of 50.0. Meanwhile, the Non-Manufacturing PMI for China declined from 50.6 to 48.7. This was the first fall in the services sector since May, demonstrating the effect of anti-COVID initiatives in several large metropolitan regions.

Korean won – The won on the downside as well as it depreciated 0.23% to 1,425 after disappointing sets of economic data. Industrial output in South Korea gained 0.8% y/y in September, which was slightly lower than the market's forecast of 0.9% growth and a slowdown from August's 1.5% increase. However, industrial production declined 1.8% m/m, following a 1.4% decline in the preceding period and posting the third straight months of contraction in productions as demands getting weaker, rising interest rates and persistent China’s lockdown.

Australian dollar – The Australian dollar fell 0.19% to 0.640. On the back of a combined strength in the food industries, retail sales in Australia grew by 0.6% m/m to a new record high of AUD 35.10 billion, marking the ninth consecutive month of growth in retail trade.

Commodities Highlights

Crude oil – The worries over Chinese demand and the higher US oil output have caused oil prices to tread downwards. Brent dropped 0.98% to US$94 while WTI dropped 1.56% to US$86 per barrel.

Gold – Gold fell 0.69% to US$1,634/oz, being pressured by the expensive dollar and the imminent jumbo rate hike of 75bps by the Fed.

Malaysia Highlights

Malaysian ringgit – The ringgit depreciated 0.06% to 4.728 and traded within the range of 4.7335 and 4.7232. According to the BNM, the central is projecting short-term outflows of US$11.2bn over the next 12 months to cover external borrowings by the government and the maturity of foreign currency interbank bills.

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 recovered the previous session’s losses as it gained 0.90% to 1,460. Detailed transactions showed that the local institutions were the net buyers with RM30.8mil flow while being offset by the selling flows from local retailers with RM22.4mil and foreign investors with RM8.4mil.

Fixed income – The local bond market saw cautious bid as the 7-year remained at 4.310%, and the 3-year -1.0bps to 3.800%, 10-year -7.0bps to 4.380%, but the 5-year +1.0bps to 4.190%.

Rates – The IRS yield for the (3Y) +3.5bps to 3.990%, (5Y) +5.5bps to 4.185%, (7Y) +5.0bps to 4.310%, and (10Y) +6.0bps to 4.440%.

Against major currencies – The ringgit was weaker against the EUR, GBP, and VND, but stronger against the AUD, JPY, CNY, SGD, THB, and IDR. But the ringgit was unchanged against the 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 - 1 Nov 2022