• BoE tightens further at a pace last seen since 1989.

Global Highlights

Dollar Index – The dollar index surged 1.42% to 112.93 as the dollar bullish play is back on the table due to the surprisingly hawkish Fed recently. On the macro front, the US trade deficit widened to US$73.3bn in September from US$65.7bn in August. Imports grew 1.5% m/m to US$331.3bn while exports fell 1.1% to US$258bn. Higher exports were seen in telecommunications equipment and semiconductor but lower in in sales of crude oil.

US equities & sovereign bonds – Wall Street was traded in the red again as the Dow Jones edged lower by 0.46% to 32,001, S&P500 fell 1.06% to 3,720, and Nasdaq dropped 1.73% to 10,343.

The UST10Y benchmark added 4.6bps to 4.147% while the UST2Y added 9.4bps to 4.714%, widening the inverted differential between the two to 56.7bps.

Euro – The euro dipped further by 0.70% to 0.975 below parity level. On the data front, the unemployment rate in the Eurozone fell to a new record low of 6.6% in September from 6.7% in the prior month, a signal of still tight labour market. Looking at the member countries, unemployment rate in France fell to 7.1% from 7.3%, while it remained steady in Germany at 3.0%.

British pound – The pound sank 2.04% to 1.116 despite the move by the BoE rising its interest rate by 75bps, the largest rate hike since 1989, to 2008 high of 3.00% in an effort to fight inflation which had rebounded back to 40-year high in September of 10.1% y/y. The central bank also noted a lower interest rate peak, in contrast with the Fed’s stance, and the possibility of longer recession which could last two years, longer than during the Global Financial Crisis in 2008.

Moving forward, we maintain our expectation where the BoE could raise its interest rate by 50/75bps in December which will bring it to 3.50% - 3.75% by the end of this year.

Japanese yen – The Japanese yen depreciated 0.24% to 148.26. The Japanese market was closed yesterday due to the Culture Day celebration. Nonetheless, the currency remained outweighed by the diverging stance between the Fed and the BoJ.

Chinese yuan – The yuan depreciated 0.16% to 7.302, posting the second straight sessions of losing. The negative impacts of Covid-19 control, and global weakening demand pose downward pressure on Chinese economy evidenced by the falling of Caixin China Composite PMI. Headline reading fell further into the contraction zone albeit slightly to 48.3 in October from 48.5 in September with factory activity shrank for the third month straight while the service sector declined the sharpest in five months.

Korean won – The won was traded weaker by 0.45% to 1,424. Following the big rate hike by the US Fed, South Korea’s financial authorities will closely monitor any signs of heightened volatility in the financial market. The widening interest rate differential raises concerns whether the country could face further dollar rally as its dollar reserves keep shrinking. As of October, the FX reserves fell to US$414.0bn from US$416.8bn in September, the lowest level since pandemic started.

Australian dollar – The Australian dollar shed 0.98% to 0.629. Australia has recorded a three-month high trade surplus at AUD12.4bn in September from AUD8.7bn in August (cons.: AUD8.9bn), driven by 7.0% m/m exports growth to AUD60.6bn and 0.4% m/m import growth to AUD48.2bn. It was supported mainly by the strong external demand of iron ore and natural gas.

Commodities Highlights

Crude oil – Oil prices traded deep in the red as China stand firm on its stringent Zero-Covid policy and heightened recession worries induced by the recent hawkish tone and rate hike by the US Fed. Brent sank 1.55% to US$94 per barrel while WTI tumbled 2.03% to US$88 per barrel.

Gold – The precious metal edged lower by 0.35% to US$1,629/oz as investors flock to the higher yield investment amidst rising interest rate.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened 0.13% to 4.744 and traded within the range of 4.7467 and 4.7378. The BNM has raised the overnight policy rate (OPR) by 25bps to 2.75%, its fourth consecutive rate hike since May as the central bank is “pre-emptively” balancing the risks of domestic inflation and sustainable growth.

External headwinds plus domestic noises remain major drawback to the ringgit. Also, the interest rates differentials between the fed funds rate and the OPR remain wide at 100bps, favouring the dollar. We project the USDMYR in 4Q22 would be at 4.70 against the dollar. We view that another 25bps will likely take place in the next meeting in January 2023, pushing the OPR to 3.00%. This will bring the interest rates to the pre-pandemic level.

We expect the MYR to trade between our support level of 4.720 and 4.730 while our resistance is pinned at 4.750 and 4.760.

KLSE – The FBM KLCI dropped 2.15% to 1,420. Detailed transactions showed that the foreign investors were the net sellers with RM265mil, offset by the RM203.8mil buying flow by local institutions and by RM61.2mil by local retailers.

Fixed income – The local bond market saw weaker bid as the 3-year +5.0bps to 3.810%, 5-year +5.0bps to 4.120%, 7-year +2.0bps to 4.260%, while the 10- year +1.5bps to 4.330%.

Rates – The IRS yield for the (3Y) +11.0bps to 3.955%, (5Y) +11.5bps to 4.155%, (7Y) -6.5bps to 4.175%, and (10Y) +12.0bps to 4.400%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.720 and 4.730 while our resistance is pinned at 4.750 and 4.760.

Source: AmInvest Research - 4 Nov 2022