Warsh Fed Hikes Into Inflation, Ringgit Slips Past 4.09

US equities closed lower after the Fed, now chaired by Kevin Warsh, hiked rates for the first time in three years to fight elevated inflation and signalled more tightening ahead. The Dow led losses at -1.21% (down roughly 500 points) with the S&P off 0.45% and Nasdaq essentially flat at -0.01%. The split tells the story: rate-sensitive and cyclical sectors were hit while tech held. Energy was the worst sector at -2.88% and financials fell 1.62% despite the higher rates, with communication services -0.90% and materials -0.73%. Only technology (+0.10%) and health care (+0.07%) closed green, and the PHLX Semiconductor index actually rose 0.63%. Waller reportedly signalled another 25bp hike within the year. The two-year yield hit its highest since July 2024 on the front-end repricing, while the long end was calmer.

Gold was the cleanest casualty, down 1.73% to 4,311.60 as the hawkish Fed and firmer dollar hit the metal to fresh one-month lows; silver fell 1.93%. WTI slipped 0.72% to 101.69 but the crude complex is being pulled two ways — an FT report cites Chinese oil prices at record highs after attacks on a Saudi pipeline, and record freight costs to ship US oil to Asia. For Bursa, sustained triple-digit crude supports Petronas-linked names (Petronas Chemicals, Petronas Dagangan, MISC) and government take, but pressures plantation and transport input costs. Copper eased 0.75% to 6.46. Watch palm: Indonesian output cuts from Kalimantan fires (up to 15%) and India weighing lower veg-oil import taxes are supportive for CPO.

The Fed hiked but the curve's reaction was concentrated at the front: the 2-year hit its highest since July 2024, while the US 10-year held at 5.002% (-0bp) and the 30-year eased to 5.342% (-11bp) — the long end reading the hike as inflation-fighting rather than growth-positive. The 10y-3m curve stays positively sloped at +0.92pt, no inversion signal. DXY was flat at 100.27 (+0.01%) despite the hike, but USD/MYR still rose 0.26% to 4.093, ringgit weaker. That is a mild export tailwind and a headwind for foreign-funded flows into Bursa. A Business Times piece flags that $100 oil and 5% US yields hit the ringgit differently than other ASEAN currencies given Malaysia's energy-exporter status.

The tell this morning is the divergence within the Fed reaction: the front end repriced hard (2-year at a 14-month high) while the 10-year held 5.00% and the 30-year fell 11bp. That is the bond market saying the hike buys credibility on inflation, not that growth is accelerating — a flatter-bias curve rather than a bear steepening. Gold agrees, down 1.73% to one-month lows as real-rate expectations firm. Yet the copper/gold ratio at 14.98 and the still-positive 10y-3m curve (+0.92pt) argue against a recession call. Equities split accordingly: financials fell 1.62% despite higher rates, because the market is pricing the hike as pressure on activity, not a fatter net interest margin. Semis rose 0.63% and tech +0.10%, unbothered by duration. For Bursa the chain runs: dollar flat but ringgit at 4.093 supports E&E and plantation revenue in MYR terms, while higher US yields cap foreign appetite for KLCI banks and yield plays like REITs and utilities. Crude holding $100 with a supply scare underneath keeps the Petronas complex bid regardless of the equity tape.

The domestic tape is dominated by imported macro rather than local catalysts. The Fed hike (NST) and the BoJ set to raise to a 31-year high frame a tightening world that pressures ringgit-denominated flows. The plantation story is the standout local angle: Indonesian fires may cut Kalimantan palm output by up to 15%, another Indonesian production region is expected to fall, and India is considering cutting veg-oil import taxes as prices climb — all supportive for CPO and Malaysian planters. On energy logistics, a record US$44mil cost to ship US oil to Asia and record Chinese oil prices after a Saudi pipeline attack reinforce a tight crude backdrop. Domestically, a Cress cut is flagged as likely to boost solar, relevant for renewables-exposed utilities, and KLIA cut e-hailing entry fees to RM2 — marginal for airport/consumer names.

Expect a soft, range-bound open with the KLCI carried by imported caution rather than a domestic catalyst, and note the index print at 1,679.21 is stale so treat local levels as reference only. The clearest flow story is plantations: Kalimantan fire-driven output cuts plus India's potential import-tax reduction give CPO a supportive bid, and a weaker ringgit at 4.093 amplifies MYR revenue — Sime Darby and the broader planter complex deserve first look. Energy names (Petronas Chemicals, Petronas Dagangan, MISC) sit on a firm crude backdrop despite WTI's 0.72% dip, given the Saudi pipeline supply scare. Banks (Maybank, CIMB, Public Bank, RHB, Hong Leong) face a two-way pull — higher global rates but foreign-flow caution from the ringgit and a US financials sector that fell 1.62%. E&E (Inari) tracks the resilient semis (+0.63%) and gets the FX tailwind. Utilities and REITs (YTL Power, Tenaga) are the crowd to fade if US 5% yields keep duration expensive, though the Cress/solar angle is a partial offset for renewables.

The calendar is dominated by central banks. The Fed decision is done and hawkish, with Waller signalling a further 25bp this year — watch for follow-through commentary. The BoJ is set to raise rates to a 31-year high, a direct read for USD/JPY (156.03) and regional risk appetite. No scheduled Malaysian macro release is evident in the headlines; the domestic driver today is offshore rate policy and CPO supply news rather than a local data print.

The MIXED stance breaks if the long end catches up to the front: a 10-year decisively above 5.00% would pressure Bursa banks and crush REITs and utilities, turning the tape clearly risk-off. Conversely, if the ringgit reverses back below 4.08 and semis extend the +0.63% lead, exporters and E&E could pull the index higher against a weak-breadth backdrop. A crude spike beyond the pipeline-attack premium would re-rate the Petronas complex sharply. And a hotter-than-signalled BoJ move could jolt USD/JPY and regional flows in a way this note does not price.