• Tighter monetary policy is in focus following a chorus of central bank decisions

Global Highlights

Dollar Index – The greenback rebounded 0.76% to 104.56 as the prospect for higher and longer federal funds rate materializes. This was also followed by the rate hike decisions from the ECB and BoE.

On the data front, the US retail sales dropped 0.6% m/m in Nov’22, worse than market expectation of 0.1% decline and after a 1.3% m/m growth in Oct’22. The November data includes Black Friday and Cyber Monday sales data, signalling a major decline in consumer spending and an upcoming recession.

US equities & sovereign bonds – Wall Street closed deep in the red as the Dow Jones dropped 2.25% to 33,202, S&P500 tumbled 2.49% to 3,896 while Nasdaq sank 3.23% to 10,811.

On the contrary, the UST10Y benchmark yield saw firmer bid despite the higher terminal rate propagated by the Fed. It dropped 3.1bps to 3.446%, while the UST2Y added 2.7bps to 4.236%, widening the inverted differentials to 78.9bps.

Euro – The euro fell 0.51% to 1.063 following the ECB’s decision. The message was clear. The ECB opted for the latter with a 50bps rate hike to 2.00% and accompanied by a hawkish message. It comes about after 75bps hike in their two previous meetings. The slower pace of rate hike could be attributed to some signs of price pressures easing and a recession loom.

Following today’s hawkish tone with smaller rate hike, we are of the view that the central bank will use the interest rates to address inflation. We expect another 50bps hike in 1H23 to bring the policy rate to settle at 3.00%. Balance sheet reduction will stay at the backseat.

British pound – The pound tumbled 2.00% to 1.218 amidst BoE meeting day. In line with market and our expectation, the BOE raised rates by 50bps rate in the final meeting of the year, pushing the base rate to 3.50%. This follows the Fed’s and ECB’s footstep of by a smaller rate hike without pushing the UK’s economy into a deeper slowdown.

On the policy rate outlook, with inflation still elevated, we expect the BOE will continue raising the interest rate in 2023. And since the BOE did mention that it will respond “forcefully” if inflationary pressure remains persistent. we are looking at another 50bps rate hike in the upcoming meeting in February 2023, pushing the base rate to 4.00%.

Japanese yen – The yen depreciated 1.70% to 137.78 as traders flocked to the US dollar. On the macro front, the Japan’s external trade recorded another deficit at JPY 2.03tn in Nov’22, slightly better than JPY 2.17tn in the prior months. It marked the 16th straight months of deficit, induced by stronger import due to weaker yen and surging commodity prices.

Chinese yuan – The yuan weakened 0.34% to 6.974 as a set of economic data indicated that the Chinese economy struggled with the stringent Covid rules. Report showed that the industrial output in China rose only by 2.2% y/y in Nov’22, much less than 5.0% in the prior month and 3.6% by market consensus. Also, the retail sales contracted 5.9% y/y, the worst since May’22 compared to forecast of 3.7% decline and worse than 0.5% decline in Oct’22. Plus, the urban unemployment remained on the upside as it up swinged to 5.7% from 5.5%.

Korean won – The won weakened 0.61% to 1,303, sharply retreating from its recent four months high.

Australian dollar – The Aussie dollar dropped 2.35% to 0.670. Labour market in Australia continue to be in tight situation as the unemployment rate remained flat at 3.4% for the second back-to-back months, the lowest level in record, as the number of employments rose 64k compared to market expectation of 19k. Meanwhile, the consumer inflation expectation fell from 6.0% in Nov’22 to 5.2% for the month of Dec’22, the lowest level in seven months.

Commodities Highlights

Crude oil – Oil prices trade lower as market players were concerned on global market and oil demand outlook induced by higher interest rate levels by global central banks. Brent dropped 1.8% to US$81 per barrel while WTI dropped 1.5% to US$76 per barrel.

Gold – Gold tilted towards the downside for the second consecutive days as it fell 1.69% to US$1,777/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened 0.52% to 4.416 and traded within the range of 4.4195 and 4.392.

On another note, the PM vowed to prop up the economy through structural economic reforms. The focus will be, among many, on attracting quality investment, shift towards low-carbon economy, refining social protection, and enhancing fiscal positions.

We expect the MYR to trade between our support level of 4.380 and 4.390 while our resistance level is pinned at 4.430 and 4.440.

KLSE – The KLCI traded lower as it fell 1.08% to 1,467. Detailed transactions showed that the local institutions and retailers were the net buyers with RM134.8mil and RM44.2mil, respectively, offset by net selling flow from foreign investors with RM179.0mil.

Fixed Income – Local bond market saw firmer bid again as the 3-year benchmark yield -4.5bps to 3.650%, 5-year -4.5bps to 3.750%, 7-year -3.5bps to 3.950%, and 10-year -7.0bps to 3.990%.

Rates – The IRS yield for the (3Y) +3.0bps to 3.585%, (5Y) +6.0bps to 3.630%, (7Y) +1.5bps to 3.725%, and (10Y) +5.0bps to 3.850%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.380 and 4.390 while our resistance level is pinned at 4.430 and 4.440.

Source: AmInvest Research - 16 Dec 2022