• Global Preliminary PMIs Show An Imminent Global Slowdown.

Global Highlights

Dollar Index – The dollar rose 0.14% to 104.70 after gaining by almost 1.0% in the previous session and ended the week on better footing following the US Fed’s decision. But recent economic data is already showing an imminent slowdown. Both the preliminary S&P PMI fell further into the contraction zone with manufacturing PMI fell to 46.2 in Dec’22 from 47.7 (cons.: 47.7) and services PMI dropped to 44.4 from 46.2 (cons.: 46.8).

We are now looking at a possible 25/50bps rate hike in Feb’23 decision. This means that it could bring the fed funds rate to 4.75% - 5.00% by then. We reiterate our view that the central bank will pause its rate hike process in 2Q23, and a rate cut somewhere in 2H23.

US equities & sovereign bonds – Wall Street closed lower across the board as the Dow Jones fell 0.85% to 32,920, S&P500 tumbled 1.11% to 3,852 while Nasdaq sank 0.97% to 10,705.

On the contrary, the UST10Y added 3.6bps to 3.482%, while the UST2Y lost 5.8bps to 4.178%, narrowing the inverted differentials to 69.6bps.

Euro – The euro tilted towards the downside for the second consecutive sessions as it fell 0.40% to 1.059. Eurozone’s Nov’22 inflation was revised upwardly to 10.1% y/y from 10.0% but down from 10.6% y/y in Oct’22.

On the policy front, we expect the ECB will continue to be hawkish to bring down the high inflation. We expect another 50bps hike in 1H23 to bring the policy rate to settle at 3.00% as the economy is tipping into the recession.

British pound – The pound shed 0.25% to 1.215 its lowest level in two weeks. UK’s retail sales contracted 0.4% m/m in Nov’22, much worse than 0.9% m/m growth in prior month and market forecast of 0.3% m/m growth. On annual basis, retail sales fell 5.9% y/y, marking the eight back-to-back months of decline as households struggle with cost-of-living crisis.

As the UK’s inflation is still elevated, we foresee the BoE to continue raising its interest rate. With “forceful” response is expected if the inflation remains persistent, we think a 50bps rate hike in Feb’223 meeting is possible.

Japanese yen – The yen strengthened 0.86% to 136.60. Ahead of the BoJ meeting which will be due on 20th Dec, we do not see any changes on its accommodative stance. But we may see a signal when it will be change and the possibility of a policy review, as signalled by one of the officials recently.

Report showed that the Jibun Bank manufacturing PMI dropped to 48.8 from 49.0 pressured by weakening demand, while the services PMI improved slightly to 51.7 from 50.3. This offers grim outlook on global trade amidst weakening demand.

Chinese yuan – The yuan was flat at 6.974 as the reopening China prospect is being tested by the hawkish Fed notion. On the pandemic front, the country is in the first of the expected three waves of Covid cases this winter.

In Beijing, the spread of Omicron has already hit services while in Shanghai, most classes will be held online.

Korean won – The won weakened 0.33% to 1,307. South Korea’s Finance Minister warned that the economy will slow at a faster pace due to the slowing global demand and high interest rate and would bottom during the 1H23.

Australian dollar – The Aussie dollar dipped 0.27% to 0.669. Australia’s preliminary Dec’22 Services PMI fell further into the contractionary zone from 47.6 to 46.9, while Manufacturing PMI dropped to 50.4, the lowest level since Aug’21.

Commodities Highlights

Crude oil – Oil prices traded deep in the red as fears of looming recession overwhelmed the market. Brent tumbled 2.67% to US$79 per barrel while WTI sank 2.39% to US$74 per barrel

Gold – Gold Tilted Rose 0.91% to US$1,793/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit weakened 0.20% to 4.424 and traded within the range of 4.4295 and 4.4152.

The focus this week in Malaysia will be on the external trade figures (due by today 19th Dec) where we expect both imports and exports will post a slower annual growth due to slowing global growth. Inflation figure also will be released on Friday (23rd Dec) where the number is expected to ease further from 4.0% in Oct’22.

We will be on the lookout as well on the political front as the first parliamentary seating after GE15 will be held this week.

We expect the MYR to trade between our support level of 4.390 and 4.400 while our resistance level is pinned at 4.440 and 4.450.

KLSE – The KLCI traded higher as it rose 0.78% to 1,479. Detailed transactions showed that the local institutions were the net buyer with RM21.7mil, being offset by the local selling flow from local retailers and foreign investors with RM9.1mil and RM12.6mil, respectively.

Fixed Income – Local bond market saw higher yields as the 3-year benchmark yield +4.0bps to 3.690%, 5-year +6.0bps to 3.810%, 7-year +7.0bps to 4.020%, and 10-year +4.0bps to 4.030%.

Rates – The IRS yield for the (3Y) +1.0bps to 3.595%, (5Y) +2.2bps to 3.652%, (7Y) +4.8bps to 3.773%, and (10Y) +2.2bps to 3.872%.

Against major currencies – The ringgit was stronger against the GBP, AUD, and SGD, but weaker against the EUR, JPY, CNY, THB, IDR, PHP, 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 4.440 and 4.450.

Source: AmInvest Research - 19 Dec 2022