• Slower US inflation growth prompts dollar to drop more than 1.0%

Global Highlights

Dollar Index – Following the lower-than-expected US inflation, the dollar index dropped by 1.08% to 104.00, touching its new six-months low. Report showed that the consumer prices grew 7.1% y/y in Nov’22, the lowest level since Dec’21 and much slower than 7.7% y/y in Oct’22 (Cons.: 7.3%). The lower reading was contributed by the easing energy, foods prices and decreasing used cars and trucks prices. However, the upside remains on shelter prices. Excluding the volatile energy and food prices, the core inflation rose 6.0% y/y in November from a year ago, easing from a 6.3% gain in Oct’22.

This will continue to support our case of 50bps rate hike during the Fed’s meeting tomorrow after four consecutive 75bps rate hike. On this note, we expect the dollar play to lose momentum as it could come down to 102.5 - 103.0 by end 2022 as our base case.

US equities & sovereign bonds – Wall Street traded in the green as the Dow Jones rose 0.30% to 34,109, S&P500 gained 0.73% to 4,020, while the tech heavyweight Nasdaq soared 1.01% to 11,257

The UST10Y benchmark yield dropped 11.0bps to 3.611%, while the UST2Y dropped 15.7bps to 4.218%, narrowing the inverted differentials to 71.1bps.

Euro – As the dollar fell, the euro climbed 0.91% to 1.063, hitting its strongest in six months as well. On the data front, the ZEW Economic Sentiment Indicator for Eurozone improved to -23.6 for Dec’22, a significant improvement from -38.7 in the previous month (cons.: -25.7). It marked the best reading since February this year as inflation expectation fell and decreasing concerns on energy crisis.

British pound – The pound is on the upside as it gained 0.79% to 1.237. Despite the better-than-expected GDP data, UK’s labour market showed mixed figures. Reports stated that the number of new unemployment benefit claims increased by 30.5k persons in Nov’22 and the unemployment rate inched higher to 3.7% from 3.6% during three months to Oct’22.

On the other hand, the regular pay rose 6.1% y/y, better than market expectation of 5.9%. Adjusted for inflation, the average real earnings without bonuses dropped 2.9% y/y in Oct’22, the sharpest decline in three months after a 2.5% contraction in Sept’22 amidst surging living costs.

Japanese yen – Notwithstanding the accommodative monetary policy by the BoJ, the lower dollar provided some strength for the Japanese yen. The currency appreciated sharply by 1.51% to 135.59. With inflation in Japan is accelerating at its fastest pace since 1991 and the current BoJ Governor Kuroda is expected to step down in Apr’23, the market is now speculating whether there would be policy review and change of stance by the central bank. But cautious remained as financial regulators is estimating that US1.1tn will be at stake should the BoJ pivot and moving away from accommodative policy.

Chinese yuan – The yuan strengthened 0.37% to 6.952. Investors were concerned that the easing Covid restrictions could cause new Covid cases to surge and posing unintended effects on public health. On another note, the government has delayed the key economic policy meeting which were due to happen this week amidst swelling cases in Beijing. The closed door Central Economic Work Conference is expected to lay out plans for 2023.

Korean won – The won appreciated 0.36% to 1,303.

Australian dollar – The Aussie dollar surged 1.63% to 0.686, its highest level since Sept’22. There is a gap between consumers and business perceptions in Australia. The consumers sentiment rose to 80 for Dec’22, from 77.9 in Nov’22 while the business confidence dropped to -4 in Nov’22 from 4, which marked the first negative reading since Dec’21.

Commodities Highlights

Crude oil – Oil prices traded in green as the Brent surged 3.45% to US$80 per barrel while WTI soared 3.03% to US$75 per barrel. The prices were supported by supply concerns including due to the outage of the Canada-to US Keystone crude pipeline and China’s reopening.

Gold – Gold climbed 1.65% to US$1,810/oz due to the lower dollar and higher expectations of slower Fed’s rate hike.

Malaysia Highlights

Malaysian ringgit – The ringgit depreciated by 0.26% to 4.429 and traded within the range of 4.4367 and 4.417.

On another note, the Malaysia’s PM has instructed government departments to develop measures for targeted subsidies to support the B40, M40 and small business owners who are affected by the elevated cost of living. This may help support government’s coffers to weather through upcoming crisis.

We expect the MYR to trade between our support level of 4.390 and 4.400 while our resistance level is pinned at 4.430 and 4.440.

KLSE – The KLCI traded in the red as it fell 0.29% to 1,470. Detailed transactions showed that foreign investors were the net sellers with RM36.2mil, while local institutions and retailers were the net buyers with RM20.6mil and RM15.6mil, respectively.

Fixed Income – Local bond market saw another day of tepid 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 3.705%, (5Y) +2.0bps to 3.870%, (7Y) +2.5bps to 4.040%, and (10Y) +3.0bps to 4.120%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.390 and 4.400 while our resistance level is pinned at 4.430 and 4.440.

Source: AmInvest Research - 14 Dec 2022