• Firmer-than-expected PMI data induces tighter monetary policy prospect

Global Highlights

Dollar Index – The dollar index rebounded in tandem with rising UST yield and strong ISM PMI data. It rose 0.71% to 105.29. In November 2022, the ISM Services PMI rebounded to 56.5 from 54.4 and beating ours and market expectations of 53.3, boosted by business activity and employment due to holiday season.  

This prompted worries among market players that the Fed will be on alert to tighten its policy further to tame down inflation.  

Meanwhile, the S&P Global US Composite PMI fell to 46.3 from 48.2, indicating the fastest private sector decline since August and among the fastest since 2009. New orders plummeted the most since the initial pandemic wave in May 2020 as the impact of high inflation and rising borrowing prices weighed on demand.

US equities & sovereign bonds – Wall Street closed in the red as the Dow Jones fell 1.40% to 33,947, S&P500 dropped 1.79% to 3,999, while Nasdaq fell 1.93% to 11,240. The UST10Y benchmark yield added 8.7bps to 3.574%, while the UST2Y added by 11.6bps to 4.387%, widening the inverted differentials to 81.4bps.

Euro – The euro fell 0.42% to 1.049. After the 0.8% m/m gains in September, eurozone retail sales shrank 1.8% in October, faster than consensus of 1.7% m/m contraction and the sharpest decline since Dec’21. As rising borrowing costs, soaring inflation, and an oil crisis impacted consumer demand, retail sales are expected to show more decline during the upcoming months.

British pound – The pound shed 0.73% to 1.219. Nov’22 UK PMI was 48.8, mirroring October's level and the preliminary estimate. The figure indicated that services activity had declined for a second consecutive month as new business had slowed. However, operational expenditure rose dramatically once more, indicating that cost pressures were not letting off.  

On another note, the downside pressure on UK’s economy is too pronounced as growth is expected to decline by 0.4% in 2023, according to the Confederation of Business Industry (CBI) forecast.

Japanese yen – The yen weakened sharply by 1.82% to 136.75, rebounding from its strongest level in more than 3-months. On the data front, in Nov’22, the au Jibun Bank Japan Services PMI was revised up to 50.3 from 50.0, following a final 53.2 in October, representing the third straight improvement in the sector but the lowest in the series.

Chinese yuan – The yuan strengthened 1.29% to 6.963 despite the stronger dollar. The Caixin China General Services PMI fell to 46.7 in Nov’2022, down from 48.1 the previous month. Demand and operations were slowed by anti COVID control measures, leading to the service sector's sharpest loss since May. Both new orders and employment fell at their fastest rates since 2005.

Korean won – The won appreciated slightly by 0.60% to 1,293. South Korea's foreign exchange reserves rose for the first time in four months in Nov’22. Despite reductions from an FX exchange programme with the state pension fund and a dip in deposits of financial institutions, the country's FX reserves were at $416.10 billion at the end of November, a gain of $2.09 billion from $414.01 billion a month earlier.

Australian dollar – The Aussie dollar fell 1.35% to 0.670. Australian corporate earnings fell 12.4% q/q in 3Q22, failing market forecasts of 0.3% increase and following an upwardly revised 7.8% gain in Q2. Corporate earnings fell for the first time since the 4Q20 amid dropping commodity prices. Interest rate speculation focuses on tomorrow's scheduled RBA meeting where we expect the central bank to raise it by 25bps instead of 50bps.

Commodities Highlights

Crude oil – Oil prices dropped by more than 3% as the stronger-than expected data in the US prompted higher worries over tighter monetary policy path by the US. Brent dropped 3.38% to US$82 per barrel while WTI tumbled 3.81% to US$76 per barrel.

Gold – Gold shed 1.61% to US$1,769/oz dollar and the expectation of tighter Fed’s policy rise.

Malaysia Highlights

Malaysian ringgit – The ringgit strengthened 0.44% to 4.369 and traded within the range of 4.3883 and 4.3615. The newly appointed PM Anwar Ibrahim stated that he was reviewing the 2023 annual budget presented by the previous Finance Minister and mentioned that most of the proposals in there would stay intact.  

We upgrade our Ringgit outlook for 2022 end year to 4.25-4.30 (previous: 4.40-4.45), while end 2023 will be 3.95-4.00 per USD (previous: 4.15-4.20) as the political noises subside and dollar index further retreat from its high.  

For today, we expect the MYR to trade between our support level of 4.340 and 4.350 while our resistance is pinned at 4.400 and 4.410.

KLSE – The KLCI closed lower by 0.69% to 1,472. Detailed transaction showed that local institutions and retailers were the net buyers with RM170.5mil and RM26.2mil, respectively, offset by foreign investors selling flow of RM196.7mil.

Fixed Income – Local bond market saw mixed movements as the 3-year yield -0.2bps to 3.670%, 5-year -2.2bps to 3.865%, 7-year -0.1bps to 3.985%, and 10-year +0.3bps to 4.040%.

Rates – The IRS yield for the 3-year -6.0bps to 3.680%, 5-year fell 10.0bps to 3.730%, 7-year -6.0bps to 3.850%, and 10-year -5.0bps to 3.980%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.340 and 4.350 while our resistance is pinned at 4.400 and 4.410.

Source: AmInvest Research - 6 Dec 2022