This Week’s Top Headlines

i) The ringgit has surged by over 3% to RM4.5230 on Friday compared to RM4.6501 on Wednesday’s close, marking the largest single-day movement from this currency pair since November.

ii) Consumer inflation in the United States has cooled to its lowest level since March 2021, providing hope for policymakers to end their historically aggressive tightening campaign. Overall inflation moderated slightly below expectations, reaching 3.0% compared to the previous month's 4.0%.

iii) MIDF’s recent fund flow report indicates that foreign investors have continued their net selling streak on the local equity market, stretching into the 12th consecutive week. The question arises as to whether this trend will continue to persist.

Scroll down to read the details.

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Ringgit makes a daring comeback

On Friday, the ringgit rallied to RM4.5230 against the US dollar from a low of RM4.6513 just two days ago, representing a 3.04% increase. This is the largest single-day movement from the currency pair for two consecutive days since November.

The upward momentum has cooled off somewhat, with the local note closing at RM4.5530.

The recent upsurge has caught investors off guard, leading many to speculate that it is due to Anwar’s virtual meeting with Elon Musk and confirmations that the electric vehicle giant Tesla will set up its headquarters in Selangor this year.

The 25-minute discussion was also attended by SpaceX Senior Director Lauren Dreyer, Communications and Digital Minister Fahmi Fadzil, and Malaysia's Minister of International Trade and Industry Tengku Zafrul Tengku Abdul Aziz.

While this is certainly great news for Malaysia’s commitment on achieving zero-net emissions by 2050, it is not the main reason for the ringgit’s rally.

US dollar index is the main cause for ringgit’s surge

The US dollar index, which tracks the strength of the greenback against other major currencies such as the euro, yen, and yuan, has slumped by over 3.49% since last Friday.

It is now at its lowest point since April, having declined below its crucial support of 100 points, providing solid evidence that the weakness of the dollar is contributing to the recent strength of the ringgit.

Additionally, economists explain that the ringgit has been oversold for quite some time, and that a strong rebound has been long overdue.

US dollar’s plunge due to moderating inflation

The greenback’s decline comes as the US consumer inflation has decelerated to 3.0% y-o-y in June 2023, the lowest level since March 2021, and slightly lower than expectations at 3.1%.

Core inflation, meanwhile, cooled to 4.8%, below forecasts of 5.0%.

These encouraging figures boost chances that the Fed might end interest rate hikes after its meeting this month, which would reduce demand for the US dollar.

Given the elevated core inflation, a final 25 basis points hike in July 2023 seems imminent by the Fed before a pause. The increase has already been largely priced in by the markets.

Global markets rally following US CPI release

The S&P 500 index rallied by 2.51% to 4,527 points, a 14-month high, from the recent CPI release, while the local Bursa market jumped by over 2.05% to 1,414 points.

Even the crypto market has seen strength, with Bitcoin leaping by 4.50% to $31,800 before retracing back down to $30,300.

Ringgit extends rally against other major currencies.

The backdrop of the dollar has given a breather to the ringgit versus other major currencies.

The pound sterling, which has strengthened by over 18% since its low in February, has reversed its unstoppable momentum, closing at RM5.9277 from a 7-year high of RM6.0465 on Wednesday.

But the pound’s strength is expected to continue, as the Bank of England is forecasted to raise interest rates further due to stubborn inflation, which came in stagnant at 8.7% in May.

Shifting to the Singapore dollar, the ringgit has climbed 1.85% in the same period. It is currently trading at RM3.4252 after retracing from its all-time low of RM3.50 on Wednesday.

It’s important to note that Singapore does not have a monetary policy based on interest rates, unlike Malaysia. Its method of controlling inflation is by strengthening its currency.

Since Singapore relies heavily on foreign trade, inflation cools with a stronger Sing dollar.

Read more about Singapore’s monetary policy here.

MIDF’s Fund Flow Report show continued net selling from foreigners

Foreign investors continued their net selling streak on Bursa Malaysia for the 12th consecutive week, with net foreign outflows reaching -RM254.1 million on the week of 10 July.

They have been sellers for 21 out of 27 weeks this year, with a total net foreign outflow of -RM4.45 billion.

The top 3 stocks that saw heavy outflows from foreign investors include RHB (-RM49.3 million), Hong Leong (-RM30.1 million), and Petronas Gas (-RM23.7 million).

On Monday, net foreign inflows of RM83.0 million were observed, with foreign investors showing interest in stocks such as Public Bank (RM28.4 million), Maybank (RM16.0 million) and Gamuda (RM15.2 million).

Selling trend is expected to reverse following the rebound in the broader market

A moderately bullish outlook on the local and regional markets is expected to help Bursa Malaysia maintain its recovery momentum this week.

The market rally initiated by the release of the recent US consumer inflation has seen notable stocks such as Public Bank, Maybank, and Tenaga Nasional rebounding by 1-2% in the past few days leading to Friday.

Thong Pak Leng, vice president of stock research at Rakuten Trade Sdn Bhd, said that given the improving market sentiment and the FBM KLCI's low values, the buying trend on the local market will continue next week.

That’s all for this week’s newsletter!

*This issue was written at 10.30 AM on 16th July 2023 and completed at 2.30 PM the same day. To get early access to our newsletter, be our patron for as little as $1/month!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice.