• The Fed hiked rates by 50bps and will begin QE tapering in June

• BOE hiked rates by 25bpst to 1.00%

• RBA surprised with a bigger than expected 25bps hike

• RBI lifts rates as inflation risks bite

• Volatile follow through after central bank decisions

• Malaysia 1Q GDP and BNM policy meet

Last week was dominated by volatility. Every asset class has been on a rollercoaster ride as investors are watching central bankers all around globe tighten monetary policy to fight inflation. The RBA, Fed and the BOE all gave the markets something more to think about. The RBA hiked rates by more than expected, the Fed took the idea of a 75bps hike off the table, and the BOE said not to look for too many rate hikes, while increasing inflation forecasts and calling for a possible economic contraction in 4Q. The RBI also raised interest rates in an unscheduled policy move. Financial conditions are starting to tighten and the risks of slower growth are accelerating.

The stock market started May with a volatile week that produced losses for the major averages. The Nasdaq led the way, falling 1.5% while the S&P 500 surrendered 0.2% for the week. Small caps also struggled. Worries about the outlook for interest rates may have weighed on Wall Street along with a continued increase in treasury yields. European stocks closed sharply lower on Friday, extending recent losses, amid rising concerns about growth, soaring inflation and rising interest rates. Lingering concerns about the impact of the Covid lockdown in China, the ongoing war in Ukraine and stringent sanctions against Russia, including an embargo on Russian oil, all contributed as well to the bearish sentiment in the market.

Equity indices in the Asia-Pacific region largely declined on Friday after an overnight drop on Wall Street sent the DJIA to its worst day since 2020. China's Shanghai Composite Index tumbled 2.2% to 3,001.56, Hong Kong's HSI plunged 3.8% to 20,001.96 whilst Japan's Nikkei 225 Index rose 0.7% to 27,003.56 as trading resumed after a holiday. Closer to home, Singapore’s STI tumbled 51.68 points or 1.55% to 3,291.89. Week on week, the bourse shed 65 points or nearly 2%. Meanwhile, the FTSE Bursa Malaysia KLCI slumped to its lowest in over seven weeks on Friday led by losses at key index-linked stocks. The benchmark index lost 18.64 points on Friday. On a weekly basis, the FBM KLCI fell 36.09 points to end the week at 1,564.34, its lowest since March 15. from 1,600.43 in the previous week.

In the FX market, the US Dollar Index (DXY) eased to 103.66 on Friday, but remained not far from a 20-year high hit above 104 earlier as investors continued to bet on further Federal Reserve monetary tightening to bring decades-high inflation under control. The ringgit closed weaker against the USD and on a weekly basis, the ringgit was lower against the greenback at 4.3650/3680 on Friday, compared to 4.3520/3570 a week earlier. The ringgit, however, was traded mixed against a basket of major currencies on a Friday-to-Friday basis. USD/MYR outlook remains neutral-to-slightly bullish next week, potentially staying within a range of 4.33-4.38 in our view. Growth and geopolitical uncertainties are expected to keep the USD supported but reduced bets of a more hawkish Fed will likely limit further advances in the greenback for now.

Source: BIMB Securities Research - 9 May 2022