• Hawkish Fed sentiments resurface and support the dollar

Global Highlights

Dollar Index – The dollar gained 0.68% to 106.68, paring previous losses during the session as market’s focus turned to the US Fed rate hike path. St. Louis Fed President Bullard stated that the interest rate needs to be raised to “restrictive” level - a range of 5.00% and 5.25% - and will be maintained throughout 2023 and into 2024. This is certainly above the previous expected Fed’s terminal rate of 4.50% - 4.75%. Nonetheless, for now, we are still maintaining our Fed funds rate projection of 50bps rate hike in December and another 25bps in January 2023, which translates to 4.50% - 4.75% projections.  

The focus this week will be on Fed’s Chair Jerome Powell speech this Wednesday which will be the final say on the rate hike path. But the labour data that will be released this week is likely to show some slowdown in the labour market. The November’s non-farm payrolls is expected to add 200k jobs, less than 261k in October.

US equities & sovereign bonds – Wall Street closed in the red as the Dow Jones fell 1.45% to 33,849, S&P500 fell 1.54% to 3,964, and tech heavyweight Dow Jones tumbled 1.58% to 11,050.  

The benchmark UST10Y added 0.4bps to 3.681% while the UST2Y lost 1.5bps to 4.438%, narrowing the inverted differentials between the two to 75.7bps.

Euro – Due to the stronger dollar, the euro fell 0.53% to a 1.034. The hawkish tone reverberated across the Atlantic as the ECB’s President Lagarde commented that the Euro zone’s inflation still has not peaked and may risk rising even higher, suggesting more rate hike series in the future.

On the data front, the consumer sentiment indicator in Germany improved to -40.2 for December 2022, from -41.9 in the prior month and the highest level in two months. The marginally positive sentiment was due to the easing energy prices and the government’s energy support scheme to reduce households’ and businesses’ energy bills.  

The focus this week will be on the preliminary inflation data. We posit that the November’s headline price growth will not be as hot as October’s albeit still high on historical standards. The headline inflation rate is expected to slow to 10.4% y/y due to the lower electricity and fuel prices. But we do not think the ECB will be convinced that inflation is falling its way down to 2% target.

British pound – The pound dropped 1.10% to 1.196. The CBI retail sales balance declined to -19 in November 2022 after posting 37 in the previous month, pointing towards the sharp tumbling of sales decline and the sixth month of negative reading since Jan’22. Retailers continued to be pessimistic driven by declining employment, investment and surging input costs.

Japanese yen – Meanwhile, the yen strengthened 0.17% to 138.95. The BoJ continue stress the need to maintain accommodative policy to prop up the economy and to increase wage growth to make up for the rising cost of living. But some critics pointed out that doing so hurts households and reducing liquidity in the Japanese Government Bond (JGB) market.

Chinese yuan – The yuan weakened 0.58% to 7.207, the weakest level since early this month. The currency is being pressured by the new daily Covid-19 infections hit new high in China and compelling authorities to impose the strict Zero-Covid rule. But risk appetite deteriorated further following the eruption of protests across China – from Shanghai to Beijing – a show of rebellion against the ruling authorities induced by the restrictive Covid policy.

Korean won – The won also weakened by 1.23% to 1,341. During its fifth day nationwide protest, South Korea government failed to reach agreement with the truckers’ the striking truckers’ union. Supply chain further worsened as supplies of cement and fuel at gas stations start to run short. This marked the second major strike in six months as truckers demanding for better pay and working conditions.

Australian dollar – The Aussie dollar sank 1.50% to 0.665 as concerns over Covid situation in China spilled over into its trading partner Australia. On the macro front, retail sales in Australia declined by 0.2% m/m to AUD35.02bn in October 2022, much lower than market forecasts of a 0.5% growth and dashing the 0.6% gain a month earlier, preliminary data showed. This marked the first drop in retail trade since December 2021, amidst high cost of living and interest rate.

Commodities Highlights

Crude oil – Oil prices were mixed as the rumour that OPEC+ will cut its production supported the prices but worries over the Covid protests in the world’s biggest crude importer pressured it down. Brent fell 0.53% to US$83 per barrel while WTI climbed 1.26% to US$77 per barrel.

Gold – Gold prices rose 0.54% to US$1,750/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit appreciated 0.10% to 4.480. Political situation in Malaysia continues to be on the positive side as Fitch Solutions Country Risk and Industry Research has raised Malaysia’s score on its Short-Term Political Risk Index to 67.3 (out of 100), from 64.8 previously. This reflects the progress made in the formation of the new government, which has lessened the political uncertainty and noises.  

We expect MYR to continue trending on a more positive momentum supported by political stability with now the focus on the cabinet line-up plus the decision by the PM to moot for a “confidence” vote on December 19 when Parliament convenes. Also, MYR will be supported by positive portfolio inflows and business as well as consumer confidence. Room for MYR to reach 4.40 level is on our cards despite the dollar play still lingering but expected to lose momentum.  

For today, we expect the MYR to trade between our support level of 4.440 and 4.450 while our resistance is pinned at 4.520 and 4.530.

KLSE – The FBM KLCI was stable at 1,487 as it was closed on Monday due to holiday. This is after it fell 1.02% to 1,502 on Friday.

Fixed Income – Ringgit bonds closed the week firmer on Friday as the 3-year - 1.5bps to 3.820%, 5-year -1.5bps to 3.965%, 7-year -3.0bps to 4.080%, and 10- year -4.5bps to 4.110%.

Rates – The IRS yield for the (3Y) was at 3.875%, (5Y) at 3.955%, (7Y) at 4.070%, and (10Y) at 4.170%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.440 and 4.450 while our resistance is pinned at 4.520 and 4.530.

Source: AmInvest Research - 29 Nov 2022