Ringgit to reflect the risk of continued selling in the bond market - Manokaran

Weekly Economic Analysis by MANOKARAN MOTTAIN

THE Ringgit’s volatility against the US Dollar rebounded back in the past week after a two-week respite as the selling in the Malaysian bonds resumed.

The Ringgit gave back all of its gains over the past week and settled back to its exact position two weeks ago at RM4.3870 / USD1.00.   

In the light of the latest selling activities, I am adjusting my trading band for the Ringgit to between RM4.37 to RM4.42 in the coming week to reflect the risk of continued selling in the bond market as we come closer towards the US Federal Reserve meeting in mid-June 2022.

Nevertheless, the local currency managed to claw back some gains against other major currencies during the week.

The Ringgit made some marked gains (almost 10 sen) against the Japanese Yen at RM3.3490 / JPY100 and edged slightly higher against the British Pound and Singapore Dollar at RM5.4806 / GBP1.00 and RM3.1893 / SGD1.00 respectively.  

However, it lost a bit of ground against the Euro, ending the week a shade lower at RM4.7045 / EUR1.00

Separately, Malaysia’s bond market retreated last week as the yields for both the Malaysian Government Securities (MGS) and US Treasuries rose back up – ending two consecutive weeks of price gains as we get closer to the next meeting of the US Federal Reserve.

Bond yields for both the 10-year US Treasuries (UST) and 10-year MGS yields went back up on selling pressure in the past week to 2.94% and 4.21% respectively as at 3 June 2022.

The latest yield spreads between both countries’ 10-year bonds narrowed further to 127 basis points from 138 basis points last week.  

MARKET

The local stock market continued to trade sideways over the past week as the 1Q2022 corporate results did not yield any major positive surprises that could change the guarded sentiments of investors and traders.

As such, the local stock market has remained in consolidation mode between 1,550 – 1,535 points for the fourth consecutive week since the start of May 2022. The 1Q22 corporate earnings releases as a whole was generally mixed.

The sectors whereby the virtually all the listed companies posted improved year-on-year performances were the plantation & healthcare companies.

The performances of other sectors were rather chequered.

Unsurprisingly, the trading volume and value in the local market remained modest in the absence of any major news flow or developments.  

Over the past week, only the US market continued to extend their gains for a third consecutive week while the ASEAN and European markets were generally flattish.

The benchmark KLCI Index ended the week on a lower note at 1,537.83 points (-8.93 points or -0.57%) on continued profit taking.

Going forward, I am maintaining my view that the local stock market will continue consolidating until the next US Federal Reserve Open Market Committee meeting which is to held on 14-15 June 2022 which is followed by the Bank Negara Monetary Policy Committee meeting on 5-6 July 2022.

The key support level for KLCI remains unchanged at 1,500 points while the 1,600-point level will be the immediate psychological barrier for the market in the event of a rebound.       

ECONOMY

The Department of Statistics Malaysia reported that Malaysia’s export prices in April 2022 rose marginally by 1.1% to 143.0 points from 141.5 points in March 2022.

However, the import unit value index grew by 2.4% to 129 points in the same period and this resulted in a 1.4% drop in Malaysia’s terms of trade.

The sectors contributing to the export unit value index growth were the animal and vegetable oil & fats (+7.6%), machinery & transport equipment (+1.5%) and chemicals (+1.2%).

Meanwhile the sectors that are driving the rise in the import unit value index were mineral fuels (+11.4%), animal and vegetable oils & fats (+5.9%) and machinery & transport equipment (+1.1%). On an annual (year-on-year) basis, the export unit value and volume index grew by 18.4% and 2.0% respectively while the import unit value and volume index rose 10.7% and 10.2% respectively.  

The prices of crude oil continued to edge higher despite OPEC+ decision to boost oil production by an additional 648,000 barrels per day by July 2022 in response to the European Union ban on most Russian oil imports.

The price of Brent crude rose by 3.11% to US$121.27 on Friday (3 June 2022). 

S&P Global Malaysia said that its Malaysia Manufacturing Purchasing Managers Index fell from 51.6 in April 2022 to 50.1 in May 2022.

The research house attributed the decline to headwinds (such as rising raw material prices, global supply disruptions and a drop in new orders) faced by manufacturers.

While the latest reading for May 2022 indicated a broad-based stagnation for the manufacturing sector, it is optimistic over the outlook as input cost inflation has slowed to its lowest rate since September 2021 while the disruption to global supply chains seems to have peaked and is set to improve going forward.    

China has accelerated its plans to double its wind and solar generation capacity by 2025 instead of 2030.

China is targeting to have 33% (around 3.3 trillion kilowatt-hours) of its estimated total power supply to their national grid coming from renewable sources from the current 29%.

China has pledged to reach peak emission level by 2030 and become carbon neutral by 2060. - DagangNews.com

     Manokaran Mottain has been an economist with a number of financial institutions is now managing his own firm, Rising Success Consultancy Sdn Bhd