Malaysia: BNM hikes rates again – UOB

Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group review the latest interest rate decision by the BNM.

Key Takeaways

“As widely expected, Bank Negara Malaysia (BNM) raised the Overnight Policy Rate (OPR) today (8 Sep) by 25bps to 2.50%. This marks the third back-to-back rate hike since BNM started the hiking cycle in May this year as the economy recovered at a stronger pace. To date, BNM has hiked 75bps, which partly reversed the 125bps of rate cuts since the start of the pandemic in Jan 2020.”

“In the latest monetary policy statement (MPS), BNM continues to expect the domestic economy to expand, supported by private sector spending amid the transition to endemicity, positive labour market conditions, resumption of tourism activities and investments. However, BNM cautioned that external demand is expected to moderate amid softer global growth. BNM expects inflation to peak in 3Q22 before moderating thereafter amid abating base effects and easing global commodity prices.”

“BNM highlighted that there is no ‘pre-set course’ and the monetary policy committee (MPC) will continue to assess developments and their impact on domestic inflation and growth. BNM also reiterated that any adjustments will be done in a ‘measured and gradual’ manner. We think BNM may have signalled a temporary pause for rate hikes pending forward-looking growth and inflation dynamics. As such, we maintain our OPR target at 2.50% by year-end, and 3.00% by mid-2023. The next and final monetary policy meeting for the year is on 2-3 Nov.”

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Breaking: Private sector employment rises by 132,000 in August vs 288,000 expected

The data published by Automatic Data Processing (ADP) showed on Wednesday that private sector employment in the US rose by 132,000 in August. This reading came in weaker than the market expectation for an increase of 288,000.

Commenting on the report, “our data suggests a shift toward a more conservative pace of hiring, possibly as companies try to decipher the economy's conflicting signals,” said Nela Richardson, chief economist, ADP. “We could be at an inflection point, from super-charged job gains to something more normal.”

Market reaction

With the initial market reaction, the US Dollar Index edged lower and was last seen trading flat on the day at 108.85.

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Oil prices rise as chances of OPEC+ supply boost dim

Oil prices rose in European trading on Friday as attention turned to next week's OPEC+ meeting and expectations that it will dash U.S. hopes for a supply boost.

Brent crude futures for September settlement, due to expire on Friday, gained $2.30 to trade at $109.44 a barrel by 1200 GMT after touching their highest since July 5. The more active October contract was up $2.24 at $104.07.

U.S. West Texas Intermediate (WTI) crude futures rose $2.20 to $98.62 a barrel.

Both contracts are set for a second monthly loss, however, down 4.7% and 6.8% respectively.

A weaker dollar and stronger equities also lent support on Friday. A fall in the dollar makes oil cheaper for buyers with other currencies.

Global equities, which often move in tandem with oil prices, were up on the hope that U.S. monetary tightening would not be as hawkish as initially expected after disappointing growth figures. [MKTS/GLOB]

A Reuters survey forecast Brent and U.S. crude would average $105.75 and $101.28 a barrel respectively this year. [OILPOLL]

Front-month Brent futures are selling at a rising premium to later-loading months in a market structure known as backwardation, indicating tight current supply.

"The oil market in Europe is considerably tighter than in the U.S., which is also reflected in the sharply falling Brent forward curve," said Commerzbank (ETR:CBKG) analyst Carsten Fritsch.

A key driver will be the next meeting of the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, together known as OPEC+, on Aug. 3.

OPEC+ sources said the group will consider keeping oil output unchanged for September, with two OPEC+ sources saying a modest increase would be discussed.

A decision not to raise output would disappoint the United States after U.S. President Joe Biden visited Saudi Arabia this month hoping to strike a deal to open the taps.

Analysts, however, said it would be difficult for OPEC+ to boost supply, given that many producers are already struggling to meet production quotas.

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Russia's Novak: Oil market is balanced but there are lots of uncertainties

Following his meeting with Saudi Arabia's energy minister, Russian Deputy Prime Minister Alexander Novak said on Thursday that they have discussed forecasts on oil prices.

"It is important to continue joint work at OPEC+ to avoid collapse on the oil market," Novak added and noted that the oil market is currently balanced while acknowledging that there were lots of uncertainties.

Market reaction

Crude oil prices showed no immediate reaction to these comments and the barrel of West Texas Intermediate (WTI) was last seen trading at $113.50, where it was down 2% on a daily basis.

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Silver Price Analysis: XAG/USD slumps into mid-$23.00s amid broad commodity sell-off

Silver has slumped towards $23.50 this Monday amid a broader sell-off in risk assets and commodities and as USD strengthens.

Now XAG/USD is below its 200DMA, bears are eyeing an eventual drop towards Q4 2021 lows in the $21.00s.

Spot silver (XAG/USD) prices came under heavy selling pressure on Monday in tandem with a broader downturn in the market’s appetite for risk and downside in other key commodities such as across energy and metals. Traders cited risk aversion relating to the increased risk of lockdowns in China with a Covid-19 outbreak now reported in Beijing, continued pessimism about the prospects for a peace deal in the Russo-Ukraine war and, perhaps most importantly, recent hawkish chatter from central bank policymakers.

Either way, XAG/USD was last trading down nearly 2.5% on the day just above the $23.50 per troy ounce mark, having broken below key resistance in the form of the 200-Day Moving Average at $23.85 and the March lows at $23.97. That means spot silver prices are trading at their lowest since mid-February, prior to the start of Russia’s invasion of Ukraine, with a modest downturn in global yields on the day as a result of risk aversion likely the only thing stopping silver crashing further towards $23.00.

But the bears will be confident in wake of the recent breakout below the 200DMA, with many calling for a drop towards support in the form of the Q4 2021 lows in the $21.00s in the coming weeks as the US dollar continues to rise on hawkish Fed sentiment and risk-off flows. The key risk events for traders to monitor this week include the first estimate of US Q1 GDP growth on Thursday followed by March Core PCE inflation on Friday, with the latter likely to endorse Fed plans/market expectations for a 50 bps rate hike at next week’s meeting.

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Russia's Putin: Kyiv showing not ready to seek mutually acceptable solutions

Russian President Vladimir Putin held a call with European Council President Charles Michel earlier on Friday and, according to Russian news agency Tass (cited by Reuters).

Putin reportedly told Michel that the possibility of him holding direct talks with Ukrainian President Volodymyr Zelenskyy depends on concrete results of talks between the two sides' negotiating teams. Kyiv is showing it is not ready to seek a mutually acceptable solution, Putin told Michel. 

Michel on Wednesday visited Kyiv and pledged that the EU will give a further EUR 1.5B in military aid to Ukraine. 

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EUR/USD Price Analysis: Extra pullbacks seen below 1.080

EUR/USD fades the pre-ECB uptick to the 1.0920 zone on Thursday.

Recent lows around 1.0800 emerge as the next contention area.

In light of the ongoing price action, extra losses in the pair remain in the pipeline in the short-term horizon. Against that, a break below the so far monthly low at 1.0808 (April 14 should pave the way for a quick visit to the 2022 low at 1.0805 (March 7) before the May 2020 low at 1.0766 (May 7).

While below the 200-day SMA, today at 1.1440, the outlook for the pair is expected to remain negative. 

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 Gold Price Forecast: $1,960 could cap XAU/USD ahead of US CPI

Gold struggled to capitalize on its early uptick and attracted some selling around the $1,960 region on Tuesday. The pullback extended through the first half of the European session and dragged spot gold further away from the four-week high touched the previous day. The prospects for a faster policy tightening by the Fed pushed the US Treasury bond yields to a fresh multi-year peak and acted as a headwind for the non-yielding yellow metal. That said, concerns that the war in Ukraine and tough new COVID-19 restrictions in China could hit global growth could limit losses for the safe-haven XAU/USD. Apart from this, worries that the recent surge in commodity prices would put upward pressure on already high consumer prices could further benefit the metal's appeal as a hedge against inflation. Hence, the market focus will remain on the US CPI report, scheduled for release later during the early North American session.

Gold: Key levels to watch

The Technical Confluences Detector shows that any subsequent slide is likely to attract some buying near the $1,952-51 region - the Fibonacci 61.8% one day. The next relevant support is pegged near the $1,941 area - the Fibonacci 23.6% one week - ahead of the $1,937 zone, marking the 5-day SMA. A convincing break below could negate prospects for any further near-term appreciating move and drag spot gold to the $1,921-$1,919 intermediate support en-route the $1,900 round-figure mark.

On the flip side, the $1,960 region now seems to have emerged as an immediate strong barrier. The said resistance is the convergence of the Fibonacci 38.2% one day, Pivot Point one week R1, Bollinger Band one-day Upper and the Fibonacci 61.8% one month. Sustained strength beyond would be seen as a fresh trigger for bullish traders and pave the way for a move back towards the $2,000 psychological mark.

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Silver Price Analysis: XAG/USD rallies into the low $25.00s amid safe-haven bid, despite higher yields

Silver has seen a decent push higher on Monday amid geopolitical/China lockdown worries, shrugging off the headwind of higher yields.

XAG/USD has rallied back to near $25.20, up over 40 cents, and is eyeing late March highs at $25.85.

Fed speak and US inflation will be in focus this week and could test bullish conviction.

Risk-off trade in global equities as markets fret about recent news regarding the Russo-Ukraine war and the risk of a further widening of lockdowns in China has offset the negative impact of a continued sharp rise in global yields on precious metals markets. Indeed, though US 10-year yields have rallied a further 3-4bps to a fresh multi-year high above 2.75%, thus increasing the opportunity cost of holding non-yielding assets (like precious metals), spot silver (XAG/USD) trades with impressive on the day gains of more than 1.7%.

XAG/USD has rallied more than 40 cents from opening levels near $24.75 to current levels around $25.20 and, in doing so, broken to the north of its 21-Day Moving Average at $24.92. Technical buying on the break above a downtrend that had been in play since early March certainly seems to have helped. Bulls will now be eyeing a test of late March highs at $25.85 ahead of a potential run towards last month’s highs near $27.00.

But the silver bulls won’t be declaring victory for the week just yet, given a plethora of key upcoming risk events. A barrage of Fed policymakers will be speaking in the coming days (with a total of four appearing on Monday alone) and are likely to reiterate recent hawkish messages. But the main event(s) of the week will be the release of US Consumer and Producer Price Inflation data on Tuesday and Wednesday which, if they surprise to the upside, could exert even more pressure on the Fed to be hawkish.

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 European Stocks Lower; More Russian Sanctions, Aggressive Fed Weigh

European stock markets traded lower Wednesday, weighed by the likely imposition of new Western sanctions on Russia as well as concerns of aggressive monetary tightening by the U.S. Federal Reserve.

By 3:40 AM ET (0740 GMT), the DAX in Germany traded 0.5% lower, the CAC 40 in France fell 0.5% while U.K.’s FTSE 100 dropped 0.1%.

The United States and Europe are set to announce later Wednesday new sanctions to punish Moscow over alleged atrocities in Ukraine, something Ukraine President Volodymyr Zelensky described as "war crimes" in a speech to the United Nations security council.

The European Commission has already proposed new sanctions including banning Russian coal imports and halting trade worth nearly 20 billion euros ($22 billion), and the White House said late Tuesday that its new measures will target Russian banks and officials and ban investment in Russia.

Russia’s invasion of Ukraine and the sanctions already levied by the West as punishment have roiled markets, causing sharp rises in commodity prices, prompting fears of sharply slower growth this year. 

German factory orders fell 2.2% on the month in February in the runup to Russia’s invasion of Ukraine, falling for the first time in four months and underscoring concerns over weaker growth in Europe’s largest economy. 

Also, dragging on the European markets are set to receive a negative handover from Asia and Wall Street after comments from Fed Governor Lael Brainard raised expectations of aggressive interest rate rises by the U.S. central bank, added to by hawkish comments from Fed Governor Lael Brainard, normally seen as one of the more dovish members of the central bank policymakers.

This puts the focus firmly on the release later Wednesday of minutes from the Fed's last policy meeting, with investors looking for clues over the likelihood of a 50 basis point hike at the U.S. central bank's next meeting in May.

In corporate news, Volkswagen (DE:VOWG_p) stock fell 2.7% after the German carmaker’s finance chief Arno Antlitz told the Financial Times that the company is likely to ditch many models by the end of the decade to concentrate on producing fewer cars overall but more profitable premium vehicles.

Vestas Wind Systems (CSE:VWS) stock fell 1.4% after the Danish wind turbine said that it would withdraw from Russia, where the firm has two factories.

Oil prices edged higher Wednesday, with traders having to balance supply concerns on the back of likely new sanctions on Russia with fears of weaker demand after a build in U.S. crude inventories and a prolonged COVID lockdown in Shanghai, the Chinese financial hub.

U.S. crude oil supply data from the industry body American Petroleum Institute, released late Tuesday, showed a build of just over 1 million barrels for last week, compared with the 3-million-barrel draw reported the previous week.

Investors now await official numbers from the U.S. Energy Information Administration later in the session for confirmation.

By 3:40 AM ET, U.S. crude futures traded 0.9% higher at $102.86 a barrel, while the Brent contract rose 1% to $107.67. 

Additionally, gold futures fell 0.4% to $1,919.50/oz, while EUR/USD traded 0.1% lower at 1.0891.

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WTI falls back under $100 with Russo-Ukraine peace talk optimism, crude oil reserve releases in focus

Oil was trading with a bearish bias on Friday amid Russo-Ukraine peace talk optimism and crude oil reserve release focus. 

WTI dipped below $100 per barrel and hit fresh weekly lows sub-$98.00, with bears eyeing March lows in the $93.00s.

Oil prices have continued to trade with a bearish bias on Friday, with front-month WTI futures dipping to fresh weekly lows under $98.00 as traders digest the recent announcement of a major crude oil reserve release in the US (1M barrels per day for six months) and a further tightening of lockdown measures in major Chinese economic zone Shanghai. Recent positive commentary from Russian Foreign Minister Sergey Lavrov regarding progress in Russo-Ukraine peace talks is also weighing on oil as geopolitical risk premia is further unwound. Having found resistance at its 21-Day Moving Average (DMA) in the $108 area earlier in the week, WTI is now probing its 50DMA to the downside in $98.00s.

International Energy Agency member nations recently commenced a meeting and the speculation is that other major oil consumer nations might also announce crude oil reserve releases alongside the US. US President Joe Biden said this could amount to a further 30-50M barrels of immediate supply. If confirmed, further newsflow pertaining to crude oil reserve releases could inject further bearishness into crude oil markets, with a test of March lows in the $93.00s on the cards.

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