• Fed raises Fed Funds rate by 50bps

Global Highlights

Dollar Index – The greenback shed 0.20% to 103.77 after the US Fed’s meeting. The central bank last night raised its interest rate by 50bps as widely expected, to bring the Fed funds rate to 4.25% - 4.50%. As the recent inflation showed a significant easing reading, we expect the upcoming inflation to be on the downside as well as the tighter monetary policy effects is starting to materialize, and commodity prices are treading downwards.  

The Fed also revised its rate projections that it will be at 5.10% by the end of 2023, well above previous projection of 4.60%. The median projection for GDP was also revised lower to 0.5% in 2023 from 1.2% and the unemployment rate was pushed higher to 4.6% from 4.4%. We now expect there will be another 50bps rate hike in Feb’23 and maintain 100bps rate cut expectation in 2H23.

US equities & sovereign bonds – Wall Street were mixed as the Dow Jones fell 0.42% to 33,966, S&P500 fell 0.61% to 3,995 while the Nasdaq rose 1.01% to 11,257.  

The UST10Y benchmark yield dropped 2.4bps to 3.477%, while the UST2Y fell 0.9bps to 4.210%, widening the inverted differentials to 73.2bps.

Euro – The euro climbed 0.46% to 1.068, a new six-months high. The industrial output in the Euro Area contracted 2.0% m/m in Oct’22 from a 0.8% m/m gains in the previous while market was expecting a more tepid 1.5% m/m contraction. The slump was mainly dragged by the lower energy, intermediate goods and durable consumer goods production as demand retreated due to bleak economic outlook.  

Despite the sign of an imminent recession, we do think that the ECB still has a lot on its plates and pushing its key rates higher by 75bps makes more sense to us.

British pound – The pound rose 0.49% to 1.243. The inflation rate in the UK fell slightly to 10.7% y/y for Nov’22, away from its highest level since 1981 at 11.1% in the prior month (cons.: 10.9% y/y). The lower prices of transport, apparel, recreation & culture, and communication helped drive the reading lower, but upside pressure came from food inflation and housing rentals. On monthly changes, the same index rose only by 0.4% m/m, marking the 10th straight months of rising but slower than 2.0% m/m in the previous month.  

This partly confirmed that inflation may have passed its peak. After 75bps rate hike made in the previous meeting, we think the BoE will go for slower pace at 50bps.

Japanese yen – The yen appreciated 0.08% to 135.48. The big manufacturers’ sentiment index shed to 7 during 4Q22 from 8 in the prior quarter, but still better than the consensus of 6. It was the lowest level since 1Q21 as businesses struggle with elevated input costs and slowing global demand.

On the monetary policy front, the BoJ officials signalled that they may do a policy review in 2023 after wage growth and any slowdown in the global economy are closely examined. In high uncertain environment, the result of the review could go either way, either moving away from the ultra accommodative policy or reiterating the current stance.

Chinese yuan – The yuan appreciated slightly by 0.02% to 6.950. Following the easing of Covid restrictions in China, the health authority stops reporting new asymptomatic cases as it is making hard for them to tally their count as those that do not have symptom stop participate in testing. Hong Kong also has eased its rules especially relating to international travellers.

Korean won – The won appreciated 0.59% to 1,295. Data showed that the seasonally adjusted unemployment rate in South Korea up ticked to 2.9% in Nov’22 from 2.8% in the prior month despite job additions grow for the 21st straight months.

Australian dollar – The Aussie dollar rose 0.13% to 0.686, its highest level since Sept’22.

Commodities Highlights

Crude oil – Oil prices traded in green for the second consecutive days tight supplies concerns continue to engulf the market. The easing Covid rules in China and slower pace of rate hike by global central banks helped offer bullish sentiment for the oil market. Brent surged 2.50% to US$82 per barrel while WTI soared 2.51% to US$77 per barrel.

Gold – Gold fell 0.19% to US$1,807/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit appreciated 0.82% to 4.393 and traded within the range of 4.392 and 4.4285.  

Malaysia received RM193.7bn approved investments for the first nine months of 2022, a 2.5% increase from the same period in 2021. It involves 2,786 projects and are expected to generate 98,414 jobs opportunities. Foreign direct investments (FDI) were the major contributor at 67.5% while the rest was sourced from domestic.  

We expect the MYR to trade between our support level of 4.360 and 4.370 while our resistance level is pinned at 4.410 and 4.420.

KLSE – The KLCI traded stronger as it rose 0.89% to 1,483. Detailed transactions showed that the local institutions and foreign investors were the net buyers with RM8.3mil and RM21.4mil, respectively, while being offset by the local retailers at RM29.7mil.

Fixed Income – Local bond market saw firmer bid as the 3-year -1.0bps to 3.695%, 5-year -7.5bps to 3.795%, 7-year -5.5bps to 3.985%, and 10-year - 6.0bps to 4.060%.

Rates – The IRS yield for the (3Y) -7.5bps to 3.555%, (5Y) -10.5bps to 3.570%, (7Y) -8.0bps to 3.710%, and (10Y) -8.0bps to 3.800%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.360 and 4.370 while our resistance level is pinned at 4.410 and 4.420.

Source: AmInvest Research - 15 Dec 2022