• The Fed made 75bps rate hike. BNM to conclude meeting later today.

Global Highlights

Dollar Index – The dollar closed lower by 0.12% to 111.345 as the Fed is expected to slower the pace of interest rates hikes in the future. Earlier, the Fed increased the fed funds rate by 75 bps to 3.75 – 4.00% to cool down inflation. The Fed turned less hawkish and signal that the pace of future interest rate hikes will be slower. We believe the rate hike from December onwards will be more modest. We are looking at 50bps hike and followed by 25bps in January. That should see the Fed settle its policy rate 4.50 - 4.75% as what we have inked out.

US equities & sovereign bonds – Wall Street down as the Dow Jones lost 1.55% to 32,148, S&P500 down 2.50% to 3,760, and Nasdaq down 3.36% to 10,525. The UST10Y benchmark yield increased by 5.860bps to settle at 4.101%, and the UST2Y up by 7.500bps to 4.620%, bringing the yields differential between UST10 and UST2 widened to -51.92bps.

Euro – The euro fell by 0.60% to 0.982 as manufacturing activity in the Euro Area declined, due to the high inflation and weakening global economic activity. The latest PMI fell from 48.4 in September to 46.4 in October, the lowest level since the first Covid-19 outbreak in 2020.

British pound – The pound lost by 0.80% to 1.139. Both the market and us are expecting that the BOE would increase the interest rate by 75bps to 3.00% later today. This is in response to the latest inflation numbers that stood at 10.1% in September, the highest level seen in 40 years. We view the UK’s economy will be heading to a recession due to the energy crisis that dampen growth. The pound could reach 1.08 against the dollar in 4Q22.

Japanese yen – The yen gained by 0.25% to 147.900. The latest BOJ minutes showed that policy makers will continue their stance on maintaining the interest rates at the current level to support Japan’s economic recovery, despite the risk of putting the yen under pressure and inflation shooting up above the desired target.

Chinese yuan – The yuan weakened by 0.17% to 7.290, as several key cities were put under a strict lockdown, due to surges in Covid-19 cases. Cities including Zhengzhou, which is the base for Foxconn has gone into a lockdown. EV producer Nio was forced to suspend production due to the containment measure.

Korean won – The won lost by 0.04% to 1,417.82, as inflation in picked up from 5.6% in September to 5.7% in October, raising the bet that the Bank of Korea will deliver more interest rate hike in the future.

Australian dollar – The Australian dollar fell by 0.69% to 0.635. RBA governor said that Australia will face an economic recession if the central bank does not continue increase the interest rates to address the high inflation and cost of living issues. This suggests that more interest rate hikes should be expected from the RBA. We expect the interest rates will reach 3.35% or 3.60% by January or February, suggesting another three more 25bps hike on the cards.

Commodities Highlights

Crude oil – Global oil prices gained due to tighter supply in the US oil inventories, and higher activities during winter. Brent gained by 1.60% to $96.16/barrel, and WTI was up by 1.84% to US$90.00/barrel.

Gold – Gold prices lost 0.77% and closed at US$1,635.

Malaysia Highlights

Malaysian ringgit – The ringgit was trading between 4.7358 and 4.7445 during the day and depreciated by 0.04% at 4.738.

BNM monetary policy meeting will conclude later today, where both the market and us are expecting the central bank to raise rate by another 25bps for the OPR to settle at 2.75% in 2022.

KLSE – The FBM KLCI up 0.39%, to 1,452. Detailed transactions showed that local institutions were net seller of RM11.5mil. Local retailers and foreign investors were net buyer of RM11.3mil and RM0.1mil.

Rates – The IRS yield for the 3-year down 7.00bps to 3.845%, 5-year down 8.50bps to 4.100%, 7-year down 6.50bps to 4.175%, and 10-year down by 5.00bps 4.280%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.725 and 4.735 while our resistance is pinned at 4.740 and 4.750.

Source: AmInvest Research - 3 Nov 2022