• Fed Minutes Showed the Central Bank Will Continue Increase the Interest Rates at a Slower Pace.

Global Highlights

Dollar Index – The dollar weakened by 0.26% to 104.25, as the Fed’s latest minutes showed that the central bank is ready to slow down the pace of its interest rate increases moving forward.

The meetings also said that the fight against inflation showed some progress, but more rate hikes should be made until the terminal rate is reached. The inflation rate in the US now has shown a downward trend after peaking at 9.1% y/y back in June’22, and latest reading was at 7.1% y/y in Nov’22. We view that the Fed Funds rate will adjust at 4.50 – 5.00% range in 2023.

US equities & sovereign bonds – Wall Street gained as the Dow Jones gained 0.40% to 33,270, S&P500 up 0.75% to 3,853 and Nasdaq gained 0.69% to 10,459.

The benchmark UST10Y lost 5.630bps to 3.683% and the UST2Y lost 1.650bps to 4.353%, widening the inverted differential between the two to -67.07bps.

Euro – The euro gained by 0.53% to 1.060 due to the weaker dollar. On a macro front, the S&P Composite PMI for the Eurozone for Dec’22 was revised from 48.8 to 49.3, but still below the expansion level, due to slower orders.

British Pound – The Pound Gained by 0.73% to 1.206 Due to the Weaker Dollar.

Japanese yen – The yen weakened by 1.23% to 132.630. Japan’s PM Fumio Kishida has urged companies in Japan to increase wages for workers to keep up with inflation and also support economic recovery. Based on latest numbers, Japan’s average cast earnings grew by 1.8% y/y, which is lower than the actual inflation reading of 3.8% y/y.

Chinese yuan – The yuan gained by 0.26% to 6.897, in line with the reopening of the economy and the weaker dollar. However, underlying issues still persist, including China’s sluggish real estate market. Recently, China resumed approvals for private equity companies to raise funds for the development in the real estate market, another step to support the sector.

Korean won – The won weakened by 0.07% to 1,271.83. The Korea’s finance ministry is acknowledging global slowdown that is impacting the South Korea’s economy. The finance ministry is expecting to spend around KRW383.2 trillion, which is 60 percent of the annual budget in the 1H23 to maintain stable growth in 2023.

Australian Dollar – The Aussie Dollar Gained by 1.66% to 0.684 Due to the Weaker US Dollar.

Commodities Highlights

Crude oil – Oil prices edged lower as the outlook on China’s and global demand remained doubtful. Brent fell 5.19% to US$77.84 per barrel and WTI also fell 5.32% at US$72.84 per barrel.

Gold – Gold gained 0.82% to US$1,855/oz, the highest level since Jun’22 supported by growth concerns among the market.

Malaysia Highlights

Malaysian ringgit – The ringgit gained by 0.23% to 4.399 and traded within the range of 4.3985 and 4.4090.

With the US interest rate hike cycle to end by end of the year, and Malaysia’s persistent trade surplus, stable sovereign credit rating and support from the elevated oil prices, we expect the ringgit to be stronger in 2023. For 2023, we forecast the ringgit to be at 4.20-4.30 by end of the year.

KLSE – The KLCI closed lower by 0.30% to 1,470. Detailed transaction showed that both local institution and foreign investors were net sellers with RM6.2mil and RM22.5mil respectively. Meanwhile, local retailers were the net buyer with RM28.7mil.

Fixed Income – The MGS 3y lost -1.0bps to 3.593%, 5y -2.0bps to 3.762%, 7y - 1.0bps to 3.953%, and 10y -2.0bps to 3.989%.

Rates – The IRS yield for the 3-year -2.25bps to 3.615%, 5-year -4.00bps to 3.660%, 7-year -7.00bps to 3.810%, and 10-year -3.00bps to 3.900%.

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.360 and 4.370 while our resistance is pinned at 4.450 and 4.470

Source: AmInvest Research - 5 Jan 2023