• Dollar rebounds after three falling days

Global Highlights

Dollar Index – The dollar rebounded after three consecutive sessions of falling. It traded higher by 0.73% to 110.44 as we await for the US midterm elections outcome and CPI data which is due to be released later tonight. We expect the month-on-month core inflation to slow to 0.5% m/m from 0.6% in September. This translates to lower yearly core inflation at 6.5% y/y compared to 6.6% y/y in the previous month.

On the political front, early results are pointing towards tight competition as expected at the Senate race. If the Republicans gain control of Congress, President Joe Biden’s ability to pass legislation will be severely dampened. We may see far less probability of any fiscal support for the economy through the recession as the Republicans are likely to block it. Other big-tickets liberal priorities like abortion, education and voting rights will be facing big challenges.

US equities & sovereign bonds – Wall Street tumbled across the board as the Dow Jones dropped 1.95% to 32,514, S&P500 sank 2.08% to 3,749, while the tech-heavyweight Nasdaq dropped 2.48% to 10,353.

The UST10Y benchmark yield lost 3.1bps to 4.092% while the UST2Y lost 7.1bps to 4.580%, narrowing the inverted differential between the two to 48.7bps.

Euro – The euro traced back its early gains and traded lower by 0.54% to 1.007 and away from its two-months high attributed by the stronger dollar. One of the ECB governing council members Wunsch pointed out that the central bank may need to raise interest rate more than the market expected if the region only faces mild recession while inflation and inflation expectation continues to rise further.

British pound – The pound dropped 1.61% to 1.136 as speculations arises on the new Exchequer is planning for £50bn spending cuts and tax rises to restore market confidence following the previous mini-budget “scares” during the ex PM Liz Truss tenure. Focus is now on the fiscal statement to be tabled by the Exchequer on 17th November 2022. With tighter fiscal policy in the picture, there will be less pressure for the BoE to raise rates aggressively.

Japanese yen – The yen depreciated 0.54% to 146.47. On the data front, the weak yen drove up input prices and downside risks increased. This is reflected by the Tankan sentiment index for manufacturers fell to 2 in November from 5 in October, the lowest reading since January 2021.

Aside from that, in September, current account surplus surged to JPY 909.3 billion, significantly higher than JPY58.9bn in August. This was the third consecutive month of a current account surplus and the highest result since March, substantially above the market projection of JPY 234.5 billion.

Chinese yuan – The yuan also depreciated by 0.14% to 7.241 partly due to the strong dollar. On the data front, a softer-than-expected inflation figure was released in October due to the drop in food and non-food costs. Inflation grew by 2.1% in October, below market forecasts of 2.4% and the lowest level since May 2022. And the monthly increase in consumer price was 0.1%, below projections and September's 0.3% while Core CPI rose 0.6%, the same as in September.

Korean won – The won sharply strengthened by 1.20% to 1,385, a level we have not seen in the past two-months. South Korea has deployed US$36bn intervention move to rescue the credit market and alleviate the fallout from the Gangwon Jungdo Development default. On the data front, despite rising interest rates, a weaker currency, and heightened recessionary concerns, the labour market held up well in October, as the seasonally adjusted unemployment rate remained constant at 2.8%.

Australian dollar – The commodity-linked Australian dollar rose 0.43% to 0.651. RBA no.2 Bullock stated that the central bank is “very committed” to fight inflation and will not hesitate to hike interest rate steeply if the upcoming data and development allows. During the latest meeting, the RBA opted for smaller rate hike of 25bps to 2.85% compared to the 50bps in September meeting.

Commodities Highlights

Crude oil – Global oil prices sank as concerns over the China’s Covid-19 development and US oil stock accumulated more than expected weigh on the commodity. Brent dropped 2.84% to US$92 per barrel while WTI tumbled 3.46% to US$85 per barrel.

Gold – Gold prices eased 0.33% to US$1,706/oz as the dollar index retraced its three-days losses.

Malaysia Highlights

Malaysian ringgit – The ringgit strengthened slightly by 0.09% to 4.736 and traded within the range of 4.737 and 4.6838. According to DOSM, the distributive trade in Malaysia remained robust as the wholesale & retail trade volume index surged 18.4% y/y in September 2022 albeit slower at pace compared to August’s 26.9% y/y.

KLSE – The FBM KLCI fell marginally by 0.05% to 1,441. Detailed transactions showed that the foreign investors were the net buyers with RM76.6mil positions, offset by the local institutions and retailers net selling flow of RM63.7mil and RM12.9mil, respectively.

Rates – The IRS yield for the (3Y) +3.0bps to 4.145%, (5Y) -1.5bps to 4.285%, (7Y) +4.5bps to 4.445%, and (10Y) -2.0bps 4.520%.

Against major currencies – The ringgit was stronger against the EUR, AUD, JPY, CNY, THB, IDR, and VND, but weaker against the GBP, SGD, 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 4.740 and 4.750.

Source: AmInvest Research - 10 Nov 2022