The US

The DXY Dollar gained by 0.09 to 101.927 by end of the week. The next Federal Open Market Committee (FOMC) meeting will conclude this Thursday (3:00am Malaysia time). Market is expecting the FOMC to hike by 25 bps. The FOMC is likely to soften its tone regarding future interest rates hike, but it is unlikely to change the view that the Fed Funds rates need to be above 5.00% quickly. We are of the view that the FOMC will make a 75 bps rate hike during the 1H2023 unless there is a significant shift in FOMC’s guidance post upcoming meeting.

US Equities & Sovereign Bonds

Dow Jones up by 0.08% to 33,978, S&P500 up by 0.25% to 4,071, and Nasdaq also up by 0.95% to 11,622 following better-than-expected GDP number last week where the economy rose 2.9% in 4Q 2022 compared to 2.6% forecast for the same period.

Better GDP numbers also sent the UST10Y benchmark yield up 0.880 bps to 3.504% and UST2Y up 1.640 bps to 4.199%. The 10/2 spread remained inverted, widening to 69.55 bps.

Eurozone

The Euro lost by 0.22% to 1.087. The European Central Bank (ECB) will be meeting this Thursday to decide on its monetary policy stance. Inflation in the Euro Area has been easing since October 2022, and the latest reading was at 9.2% y/y in December 2022. Nonetheless, core inflation is still on the upward trend, and stood at 5.2% y/y in December 2022, the highest reading since the 1990s. We are expecting the ECB to deliver another 50 bps rate hike during the 1H23 to bring down inflation.

The UK

The Sterling weakened by 0.21% to 1.238. The Bank of England (BoE) will also be meeting on Thursday. Inflation will still be the main policymakers’ topic, but the dilemma is making further rate hikes at the expense of the economy, which is already sluggish. Despite all of these, the rate hikes seem necessary to keep the BoE’s credibility on track although it clearly promotes stagflationary risk in the UK. Similarly, splitting views among BoE policymakers should be expected, where in the previous meeting, two members opted for the interest rates to be maintained, one voted for a 75 bps rate hike, and the rest voted for 50 bps rate hike. Overall, we expect another 50 bps rate hike in 2023, bringing its cash rate to 4.00%.

Japan

The Yen gained by 0.26% to 129.880. Based on the latest survey, around onethird of companies in Japan are planning to offer wage hikes for their employees, to overcome the high inflation.

China

The Yuan remained at 6.793 due to the Lunar New Year for the whole week. After the reopening of the economy, China’s government has pledged to implement several measures to boost consumption and make it the main determinant for economic growth this year.

South Korea

The Won down 0.02% to 1,231.48. The South Korean government has pledged that strong support will be provided for exporters, including tax breaks and administrative assistance. This is responding to the GDP numbers that contracted for the first time since the pandemic.

Australia

The Aussie Dollar weakened 0.21% to 0.710. The inflation rate in Australia climbed to 7.8% y/y during the last quarter of 2022 from 7.3% in Q3 and above the market forecast of 7.5%. It was the highest point since 1990.This builds up the case for a 25 bps rate hike in the upcoming 7 February 2023 meeting, which is in line with market expectations.

Crude Oil

Prices for oil were down as fear of economic recession has not toned down with growth-inflation conundrum remains loud. Brent down 0.93% to USD86.66 per barrel and WTI also down by 1.64% to USD79.68 per barrel.

Gold

Gold Lost 0.06% to US$1,928/oz, and Trading at Its Highest Level Since the Beginning of the Year.

Malaysia Highlights

The ringgit strengthened further by 0.03% to close at 4.244, sustaining the momentum since the beginning of the year. Over the weekend, Prime Minister Datuk Seri Anwar Ibrahim said that the high import bills, food security matters and environmental issues will be addressed in the upcoming 2023 Annual Budget, which will be tabled on 24 February 2023.

Against Other Currencies

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

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.220 and 4.230 while our resistance is pinned at 4.260 and 4.270.

FBM KLCI

The FBM KLCI down 0.06% to 1,498. Detailed transaction showed that local institutions were net buyer of RM35.5 million. Local retailers and foreign investors were net seller of RM4.8 million and RM30.7 million respectively.

Fixed Income

The benchmark yield MGS 3Y up 3.0bps to 3.387%, 5Y +2.0bps to 3.543%, 7Y -5.0 to 3.655%, and 10Y remained at 3.772%.

Source: AmInvest Research - 30 Jan 2023