• US PPI surprises to the upside ahead of busy central bank week

Global Highlights

Dollar Index – The dollar index rose slightly by 0.03% to 104.81 following the release of PPI data. It showed that the producer inflation in the US grew 7.4% y/y in November’22, slower than 8.1% y/y in the prior month, but slightly higher than market expectations of 7.2% y/y. On monthly basis, the same index gained 0.3% m/m for the third straight months, erasing the 0.4% m/m decline back in July’22.

Meanwhile, the consumer sentiment climbed to 59.1 for December’22, beating consensus of 56.9, but it still remained much below the historical average of 85.4, weighed by high inflation, rising interest rates and uncertain economic prospect.

Focus this week will be on the US Fed meeting. We maintain our case of 50bps rate hike this week followed by another 25bps in January’23 meeting, with a 50% chance of 50bps hike instead. Ahead of the decision, we will also see consumer price data. A second month of low inflation reading would help support our conviction of 100bps cut in 2H23.

US equities & sovereign bonds – Wall Street traded lower on Friday as the Dow Jones fell 0.90% to 33,476, S&P500 down 0.73% to 3,934, while the tech heavyweight Nasdaq fell 0.70% to 11,005. The UST10Y benchmark yield added 9.6bps to 3.578%, while the UST2Y rose 3.7bps to 4.344%, narrowing the inverted differentials to 76.6bps.

Euro – Due to the stronger dollar, the euro fell 0.15% to 1.054, hovering near the five months high. The ECB officials will also meet-up this week for their monetary policy decision. We and the markets are looking at 50bps rate hike this Thursday, but we do not dash out the possibilities of a larger hike of 75bps as data showed some resilience during 3Q22.

British pound – The pound gained 0.20% to 1.226, almost reaching the six months high earlier this month despite the higher dollar. The British government announced reforms to maintain London as one of the most competitive financial hubs as the city is now competing against the likes of Amsterdam, Paris and Frankfurt following the Brexit. The BoE will announce its policy decision on Thursday as well. We expect a 50bps hike in this week’s meeting and another 50bps hike in February, which is likely to mark the peak of this tightening cycle.

Japanese yen – The yen strengthened 0.08% to 136.56. Nonetheless, the recent currency gain was trading close to its strongest level in four months as the dollar recedes from its multi-year highs. And possibilities for the central bank to abandon the 10Y JGB yield cap as early as next year as inflation and wage growth starts to accelerate remains.

Chinese yuan – The yuan appreciated 0.13% to 6.958, supported by the easing Covid restrictions albeit inflation data remain tepid. Report showed that the headline inflation rate in China fell to 1.6% y/y in November 2022, down from 2.1% y/y in the previous month (cons.: 1.6%), driven by the sharply lower food inflation due to the falling pork prices as authorities released reserves into the market.

Korean won – The won strengthened sharply by 1.23% to 1,301. South Korea’s current account surplus narrowed to US$880mil in October’22, much lower than US$1.58bn back in September’22.

Australian dollar – The Aussie dollar rose 0.38% to 0.680. The currency will be one of the beneficiaries from the China’s loosening Covid rules although slower global economic trade could dampen the sentiment.

Commodities Highlights

Crude oil – Oil prices was traded lower as Brent fell 0.07% to US$76 per barrel while Brent dropped 0.62% to US$71 per barrel. Market players worried over the growing recession fears despite the tight supply prospect.

Gold – Gold rose 0.46% to US$ 1,797/oz as investors become cautious with global economic prospect.

Malaysia Highlights

Malaysian ringgit – The ringgit depreciated by 0.15% to 4.405 and traded within the range of 4.4175 and 4.3885.

Malaysia’s industrial production data will be unveiled this week. We expect growth to continue but at a moderate pace driven by easing both domestic oriented and export-oriented manufacturing activities.

We expect the MYR to trade between our support level of 4.370 and 4.380 while our resistance level is pinned at 4.420 and 4.430.

KLSE – The KLCI traded lower by 0.06% to 1,466. Detailed transactions showed that local institutions were the net buyers with RM108.9mil, while local retailers and foreign investors were the net sellers with RM9.0mil and RM99.9mil, respectively.

Fixed Income – Local bond market saw lukewarm volume as the 3-year +1.0bps to 3.650%, 5-year +2.0bps to 3.855%, while the 7-year and 10-year remained at 3.985% and 4.070%.

Rates – The IRS yield for the (3Y) -4.0bps to 3.585%, (5Y) -3.0bps to 3.630%, (7Y) -3.0bps to 3.750%, and (10Y) -5.0bps to 3.830%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.370 and 4.380 while our resistance level is pinned at 4.420 and 4.430.

Source: AmInvest Research - 12 Dec 2022