Anxiously awaits Bank Negara's Monetary Policy meeting soon

WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN

The local stock market remained subdued during the week following the latest 75bps rate hike to the US Federal Funds Rate (FFR) by the US Federal Reserve Open Market Committee (FOMC) meeting two weeks ago.

With the US FFR currently at 1.50% and poised to be raised by another 50bps to 75bps at the next FOMC meeting on 26-27 July 2022, the market’s attention will now be focused on the upcoming Bank Negara Monetary Policy Committee meeting on 5-6 July 2022.

The Overnight Policy Rate (OPR) current stands at 2.00% and is likely to be matched or even overtaken by the US FFR by end of July 2022 if the OPR remains unchanged at the coming MPC meeting.

As such, I believe the market will continue to consolidate throughout the remainder of June 2022 and well into July 2022. Investors and traders are clearly very cautious and this is reflected in the daily trading value of the local stock market which has dropped to below RM2.0 billion on a number of trading days this month.   

The benchmark KLCI Index ended the week at 1,436.70 points (-20.04 points or -1.37%), and is likely to consolidate between 1,420 points and 1,485 points in the coming weeks. The next lower and upper support and resistance levels are 1,400 points and 1,500 points respectively.

I am maintaining my view for now that the US Federal Funds Rate could end the year around 3.00% as I believe that the Federal Reserve may slow down the pace of the rate hikes towards the end of the year if inflationary pressures ease.  

Malaysia’s bond market stabilized over the past week as yields for the Malaysian Government Securities (MGS) held its ground after pricing in the latest interest rate hike by the US Federal Reserve.

Bond yields for both the 10-year US Treasuries (UST) and 10-year MGS yields ended the week at 3.13% and 4.21% respectively as at 24 June 2022.

This brings the latest yield spreads between both countries’ 10-year bonds to 108 basis points.

I suspect that the MGS may still come under further selling pressure in the months ahead due to more rate hikes but doubt yields for the 10-year MGS will reach 5.0% based on the current outlook.      

ECONOMY

Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed revealed that the federal government may have to bear RM30 billion in fuel subsidies for 2022 as compared to RM11 billion in 2021.

He added that the Year-To-Date (YTD) price of Brent Crude currently stands at US$106 (RM467) per barrel as compared to the 2022 Federal Budget’s assumption of US$66 per barrel and the geopolitical tensions arising from the Russia-Ukraine conflict has highlighted the importance of energy security and self sufficiency for Malaysia.  

Prime Minister Datuk Seri Ismail Sabri Yaakob said the federal government will continue to maintain the subsidy for cooking oil in plastic packets which currently retails at RM2.50 per kilogram (kg).

However, the subsidies for bottled cooking oil (of 2kg, 3kg and 5kg) which started in August 2021 will be discontinued from 1 July 2022 onwards due to smuggling activities.

The current maximum retail price for bottled palm cooking oil are RM12.70 (2kg), RM18.70 (3kg) and RM29.70 (5kg). He added that the government is currently subsidizing 60,000 metric tons of cooking oil which is above the total national consumption of 55,000 metric tons and had spent RM4.0 billion in cooking oil subsidies to date which is far above the RM2.5 billion and RM550 million spent in 2021 and 2020 respectively.

In a separate development, he also announced that the federal government will be distributing additional cash assistance to the B40 group under the Bantuan Keluarga Malaysia (BKM) to help them face rising food prices following the withdrawal of subsidies for chicken and eggs.

The BKM Phase 2 payment will involve an additional allocation of RM630 million with each household set to receive an additional RM100 while those who are single will receive an additional RM50. The payment will benefit nearly 4 million households, 1.2 million senior citizens and 3.4 single persons.

The Insolvency Department reported nearly 60% of the 46,132 Malaysians who were declared bankrupt between 2018 till May 2022 were aged between 25 to 44 years old. The data also indicated that personal loans accounted for nearly 42% of those bankruptcy cases and was followed by vehicle purchase (15%) and business loans (13%).

Nevertheless, the number of bankruptcies has been on a declining trend from 2018 (16,482 cases) to 2021 (6,554 cases). However, a part of the drop in bankruptcy cases could be attributed to an amendment in the Insolvency Act 2020 which raised the bankruptcy threshold to RM100,000 from RM30,000.   

Communications and Multimedia Minister Tan Sri Annuar Musa said the newly launched Measat-3d satellite will enable Malaysia to achieve 100% Internet coverage before 2025 and improve the quality of its existing broadband services.

Measat-3d costs RM1.2 billion and is Measat’s eighth and most advanced satellite. It is capable of providing broadband services with speeds of between 35Mbps to 100Mbps as compared to less than 10Mbps provided by existing satellites. 

Sarawak Premier Tan Sri Abang Johari Openg said the Sarawak state government is targeting to grow its economy at a rate of between 6% to 8% per annum to double the size of its economy to RM282 billion by 2030 through its Post COVID-19 Development Strategy 2030 (PCDS 2030).

He added that PCDS 2030 will also be focusing on cascading the wealth generated from the enlarged economy equitably to all Sarawakian and will boost the average household income of Sarawakians from the current RM5,000 per month to RM16,000 per month by 2030.  

The economic sectors that are slated to be the primary growth drivers are agriculture (using smart & precision farming techniques) and manufacturing (adopting Industry 4.0 digital practices).

CURRENCY

The Ringgit held relatively steady during the week and ended against the US Dollar at RM4.40 / USD1.00 as the foreign exchange market had already factored in the impact of recent 75 basis points hike to the Federal Funds Rate.

The next key development would be the upcoming Bank Negara MPC meeting in the first week of July 2022. As such, I am maintaining my trading band for the Ringgit at RM4.38 to RM4.43 for the coming week in the absence of any major market news.   

However, the Ringgit weakened against most of the other major currencies. The Ringgit lost ground with the Singapore Dollar at RM3.1716 / SGD1.00 (-0.7sen), British Pound at RM5.4121 / GBP1.00 (-3sen) and Euro at RM4.6447 / EUR1.00 (-0.14sen). It only gained marginally against the Japanese Yen at RM3.2560 / JPY100 (+0.5sen). - 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