The US

The lingering sentiment from the slower US inflation data remains as the dollar index edged lower by 0.04% to 102.20. Plus, the money market is now pricing in an over 90% probability for a 25bps rate hike in Feb’23 meeting. Although, we reiterate our view that the US labour market remains tight, and the US Fed is still not finished in fighting inflation, putting a case for a cumulative of 75bps in 1H23.

Meanwhile, on the data front, preliminary report showed that the US consumer sentiment improved to 64.6 for Jan’23, the highest level since Apr’22 (cons.: 60.5). More importantly, in parallel, inflation expectation for a year ahead has already receded to 4.0% from 4.4%.

US Equities & Sovereign Bonds

Major indices in the US closed their session on Friday higher amidst earning season. Dow Jones climbed 0.3% to 34,303, S&P500 gained 0.4% to 3,999, while Nasdaq rose 0.7% to 11,079.

The UST10Y benchmark yield added 6.3bps to 3.504% while UST2Y added bps to 4.230%, narrowing the inverted differential between the two to 72.9bps.

Eurozone

Despite the lower dollar, the euro shed 0.21% to 1.083 but remained around its highest level since Apr’23. The focus for the Eurozone this week will be final inflation figure as market is expecting a slower growth of 9.2% in Dec’22 from 10.1% y/y in Nov’22.

The UK

The British pound climbed 0.14% to 1.223 as UK’s GDP figure surprised towards the upside. During Nov’22, the UK economy grew marginally by 0.1% m/m, slower than 0.5% m/m in Oct’22 but beating market expectation of 0.2% contraction, supported by consumer-facing services.

Japan

The yen appreciated sharply by 1.07% to 127.87, approaching its strongest level in over seven months. Aside from the easing US inflation, the expectation for tightening BoJ is rising following the yield curve control (YCC) alterations last month. On another note, the BoJ has bought ¥5 trillion JGB as the yield on 10- year benchmark reached 0.545% during Friday morning.

China

The yuan strengthened 0.42% to its five months high at 6.701. Data showed that China’s export declined 9.9% y/y after a 8.9% y/y drop a month earlier. This is the sharpest drop since early 2020 due to slowing global demand and tighter financing conditions.

South Korea

The won strengthened 0.34% to 1,241 following the Bank of Korea’s meeting. After raising its interest rate by 275bps to 3.25% since Aug’21, the central bank raises it by another 25bps to bring the rate to 3.50% during Friday’s meeting. Policymakers remained hawkish in fighting inflation, but the future policy path will be determined by downside growth risks, financial stability risks and policy changes in other major countries.

Australia

The Commodity-linked Aussie Dollar Fell Marginally by 0.01% to 0.697.

Crude Oil

Oil prices rose as Brent gained 1.49% to US$85 per barrel while WTI climbed 1.88% to US$79 per barrel. It was supported by the receding dollar and optimism on China’s import demand.

Gold

As market players put higher bets on slowing rise of interest rates, gold surged 1.14% to US$1,920/oz

Malaysia Highlights

The ringgit strengthened 0.56% to 4.335 and traded within the range of 4.3590 and 4.3342. Bank Negara Malaysia monetary policy committee are scheduled to meet this coming Wednesday and Thursday (18 and 19 Jan), where we are expecting the central bank to deliver another 25bps rate hike, pushing the OPR to 3.00%, the same level prior the Covid-19 pandemic.

However, market is debating whether BNM could push the OPR much higher to 3.25% or above. For now, we maintain our view that the OPR will be at 3.00% this year. However, should core inflation remains too high for longer than what we are currently anticipating, then the probability of another 25bps rate hike should not be discounted.

Against Other Currencies

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.290 and 4.300 while our resistance is pinned at 4.370 and 4.380.

KLSE

The local bourse’s FBMKLCI rose 0.43% to 1,495. Detailed transaction showed that both local institutions and foreign investors were then net buyers with RM26.7mil and RM40.9mil flow, respectively, being offset by net selling positions from local retailers at RM67.7mil.

Fixed Income

The benchmark yield MGS 3Y -1.5bps to 3.525%, 5Y -2.5bps to 3.775%, 7Y - 1.5bps to 3.950%, and 10Y -4.0bps to 3.935%.

Rates

The IRS yield for the 3-year -1.5bps to 3.610%, 5-year -5.3bps to 3.660%, 7-year -5.5bps to 3.790%, and 10-year -4.0bps to 3.940%.

Source: AmInvest Research - 16 Jan 2023