Consumer Price Index expected to continue moderating til mid-2024 before fuel subsidy rationalization program begins - Manokaran

WEEKLY MARKET ANALYSIS BY MANORAN MOTTAIN

MALAYSIA's inflation continues to moderate to a year low of 1.8% in October 2023 which is also the lowest level since March 2021.

It is also encouraging to see that core inflation (which excludes food and energy) also slid to 2.4% in October 2023 from 2.5% in the previous month.

The key driver to inflation continues to be the food and non-alcoholic beverages group which rose 3.6% from 3.9% in September 2023.

This segment forms 29.5% of the total CPI weight. I expect the full year CPI for 2023 to come in around 2.6%.

Given the diminishing impact of inflationary pressures, the CPI is expected to continue moderating into the first half of 2024 before edging higher once the fuel subsidy rationalization program begins. 

The KLCI just managed to hold above the 1,450-point resistance level to end the week -6.75 points (-0.46%) lower at 1,453.92 points.

As expected, the local equities market was listless as the 3Q2023 corporate results were generally mixed, nevertheless there was a slight pickup in trading activities last week as the average daily trading value rose to RM2.05 billion per day from RM1.98 billion during the week.

This indicates that the follow through buying support remains weak and I am inclined to maintain my trading range for the KLCI in the immediate term to between 1,450 and 1,485 points.

Performance of the market in the coming week will continue to be dependent on the 3Q2023 corporate earnings releases.   

US Treasury yields held steady over the past week as the latest meeting minutes of the Federal Open Market Committee did not give any indication of potential rate cuts.

This caused the market to price in a 99.5% expectation that the US Federal Reserve will continue to hold the Federal Funds Rate at the 5.25% - 5.50% at its upcoming meeting in December 2023.     

UST 10-year yields rose three (3) basis points to 4.47% last week caused the negative yield differential widen to 67 basis points against the local 10-year the MGS yield which fell for the fourth week in a row by four basis points to 3.80%.  

The existing negative yield differential between the 10-year MGS and UST is expected to remain substantial and cause the local MGS to remain range bound as the yield differential has already factored in at least two (2) interest rate cuts by the US Federal Reserve.  

The Ringgit was on its back foot against all of the major currencies last week. The local currency ended lower against the US Dollar at RM4.6830 (+0.50sen), the Euro at RM5.1085 (+10.49sen), the Pound Sterling at RM5.8771 (+4.81sen) and the Singapore Dollar at RM3.4917 (+2.57sen).

The latest round of weakness is likely triggered by trade flows as foreign fund managers in both the bond and equity markets remain net buyers.

As expectations of any interest rate movement in the US are almost non-existent in the five remaining weeks in 2023, I am maintaining my USD-MYR trading range to between RM4.62 – RM4.72 for the coming week. - DagangNews.com