rate hikes

 
 

US weekly jobless claims near 49-year low; import prices fall

WASHINGTON, Dec 13 — The number of Americans filing applications for jobless benefits tumbled to near 49-year lows last week, which could ease concerns about a slowdown in the labour market and economy. Other data today showed import prices…


Ringgit to strengthen to below RM4 against US dollar by early 2019: Rakuten Trade research head

KUALA LUMPUR: The ringgit is expected to gradually appreciate against the US dollar towards end of the year and strengthen below the RM4 level by early 2019, according to Rakuten Trade Sdn Bhd’s head of research Kenny Yee.

The local unit weakened 0.1% to 4.1865 against the greenback as at 5pm yesterday. Year-to-date, it has depreciated 3.4%.

“By end of this year, I expect it to improve to the RM4.05-RM4.10 level and should dip below RM4 early next year. Hopefully the foreign funds have started to flow back into Malaysia by that time,” Yee told the media during the fully online broker’s market outlook briefing here today.

“Initially, early this year we expect the ringgit to hover around RM3.80-RM3.90 level, but looking at what had happened in the US (rate hikes) and the recent (weakening of) Chinese renminbi, I think the ringgit has performed worse than expected,” he added.

Hence, Yee said the foreign funds are likely to return in the near term to take advantage of the lower ringgit.

Year-to-date, he said the foreign net selling stood at almost RM11 billion.

Moreover, Yee said Malaysia, which has a lower average market volatility compared with Singapore, Indonesia, Vietnam, Thailand and the Philippines, is known as the region’s safe haven for foreign funds and is likely to attract foreign investors’ interest.

“Malaysia is usually known as the region’s more defensive market, and it is a preferred destination for foreign funds,” he added.

The firm however substantially reduced its corporate earnings growth forecast for 2018 and 2019 to 4.1% and 4.2% respectively, from 6.8% and 8.3% previously on the back of the sharp earnings downgrade in the gaming, telecommuni-cation and plantation sectors.

“Going forward, we expect banking sector will continue to be the main catalysts for earnings growth,” he said.

However, for 2020, the firm expects a better performance for Malaysian com-panies with an estimated 7.6% growth.

Rakuten Trade’s top picks among the FBM KLCI component stocks are Malayan Banking Bhd (Maybank), Genting Bhd, CIMB Group Holdings Bhd, Axiata Group Bhd and Gamuda Bhd.

Yee noted that the index-linked blue chips are ripe for the picking following some of the heaviest sell-off seen in May and June.

In the small and mid cap space, Rakuten Trade favours Kelington Group Bhd, HSS Engineers Bhd, Malaysia Building Society Bhd, Perak Transit Bhd and Vizione Hold-ings Bhd.

According to Yee, the FBM KLCI is anticipated to grow over 7% or 100 points from the current 1,660 points to touch 1,780 points by year-end and reach 1,840 points in 2019 based on 16 times the market’s forecast earnings.


Heaviest selling of Malaysian bonds by foreign funds in five months

PETALING JAYA: Foreign investors returned as net sellers of Malaysia’s debt securities in November with total foreign holdings declining by RM5.2 billion, after a short-lived increase of RM7.8 billion in the previous month, according to Kenanga Research.

It marked a fall of 2.7% month on month, the quickest pace since June 2018.

Consequently, the share of total foreign holdings of Malaysia’s debt inched lower to 13.5% from 14% in October.

The bulk of November’s decline was accounted by a net decline of Malaysian Government Securities (MGS) by RM5.4 billion (Oct: +RM4.7 billion), pulling down foreign holdings share of total MGS to 38.8% (Oct: 40.7%), as well as by a net decline of private debt securities (PDS) by RM300 million (Oct: +RM1.4 billion), slightly tilting the foreign holdings share of total PDS down to 2.1% (Oct: 2.2%).

Year to date, total net foreign bond holdings fell by RM19.6 billion.

Kenanga Research expects the outflow of portfolio funds to persist going into next year as there is a total of US$11.1 billion debt maturity in Q4’18 compared with US$6.4 billion in Q3’18, and as risk-averse sentiments remain in relation to trade war uncertainties, despite the announcement of 90-day new-tariff ceasefire by US President Donald Trump, as investors await further concrete resolutions to be put forward.

It said the sell-off occurred against a backdrop of financial market turmoil amid trade war jitters, tumbling global oil prices and Federal Reserve interest rate increases, albeit likely to happen at a more gradual pace and less frequent going forward.

“Based on our observation, the bond portfolio flow trend largely correlates with Fedspeak or the language of the US Federal Reserve. Apart from economic indicators, namely the less convincing job creation numbers in November, dovish statements of key Fed officials, including chairman Jerome Powell’s remark that the current benchmark interest rate is ‘just below’ neutral, suggests less aggressive rate hikes by the Fed for next year.”

This, it said, puts into question the three indicative rate hikes for 2019 and one in 2020.

“Nevertheless, a rate hike in December remained within our expectation.”

The US 10-year Treasury note average yield was seen dropping by 7 basis points (bps) to 3.10% in October (Oct: +15 bps), while the benchmark 10-year MGS average yield decreased by 3 bps to 4.11% (Oct: +4 bps). Consequently, the MGS-US Treasury average yield spread widened to 102 bps (Oct: 98 bps).

Kenanga Research expects the ringgit to come under pressure for the rest of the year but Opec’s decision to cut oil production by 1.2 million barrels per day for the first six months of 2019 may provide some support to the currency.

“Hence, we maintain our USD/MYR end-of-year forecast at RM4.15.”

The ringgit weakened 0.16% to 4.1725 against the greenback as at 5pmtoday.

On monetary policy, the research house expects Bank Negara Malaysia to hold the Overnight Policy Rate (OPR) at 3.25%.

“As domestic economic growth is ex-pected to taper off and inflation is expected to remain subdued, we believe BNM will hold the OPR unchanged at 3.25% till year end and potentially next year, in ensuring price stability and to remain supportive of growth,” it said.


Foreign selling of Malaysian bonds picks up in November

PETALING JAYA: Foreign investors returned as net sellers of Malaysia’s debt securities in November with total foreign holdings declining by RM5.2 billion, after a short-lived increase of RM7.8 billion in the previous month, according to Kenanga Research.

It marked a fall of 2.7% month on month, the quickest pace since June 2018.

Consequently, the share of total foreign holdings of Malaysia’s debt inched lower to 13.5% from 14% in October.

The bulk of November’s decline was accounted by a net decline of Malaysian Government Securities (MGS) by RM5.4 billion (Oct: +RM4.7 billion), pulling down foreign holdings share of total MGS to 38.8% (Oct: 40.7%), as well as by a net decline of private debt securities (PDS) by RM300 million (Oct: +RM1.4 billion), slightly tilting the foreign holdings share of total PDS down to 2.1% (Oct: 2.2%).

Year to date, total net foreign bond holdings fell by RM19.6 billion.

Kenanga Research expects the outflow of portfolio funds to persist going into next year as there is a total of US$11.1 billion debt maturity in Q4’18 compared with US$6.4 billion in Q3’18, and as risk-averse sentiments remain in relation to trade war uncertainties, despite the announcement of 90-day new-tariff ceasefire by US President Donald Trump, as investors await further concrete resolutions to be put forward.

It said the sell-off occurred against a backdrop of financial market turmoil amid trade war jitters, tumbling global oil prices and Federal Reserve interest rate increases, albeit likely to happen at a more gradual pace and less frequent going forward.

“Based on our observation, the bond portfolio flow trend largely correlates with Fedspeak or the language of the US Federal Reserve. Apart from economic indicators, namely the less convincing job creation numbers in November, dovish statements of key Fed officials, including chairman Jerome Powell’s remark that the current benchmark interest rate is ‘just below’ neutral, suggests less aggressive rate hikes by the Fed for next year.”

This, it said, puts into question the three indicative rate hikes for 2019 and one in 2020.

“Nevertheless, a rate hike in December remained within our expectation.”

The US 10-year Treasury note average yield was seen dropping by 7 basis points (bps) to 3.10% in October (Oct: +15 bps), while the benchmark 10-year MGS average yield decreased by 3 bps to 4.11% (Oct: +4 bps). Consequently, the MGS-US Treasury average yield spread widened to 102 bps (Oct: 98 bps).

Kenanga Research expects the ringgit to come under pressure for the rest of the year but Opec’s decision to cut oil production by 1.2 million barrels per day for the first six months of 2019 may provide some support to the currency.

“Hence, we maintain our USD/MYR end-of-year forecast at RM4.15.”

The ringgit weakened 0.16% to 4.1725 against the greenback as at 5pmtoday.

On monetary policy, the research house expects Bank Negara Malaysia to hold the Overnight Policy Rate (OPR) at 3.25%.

“As domestic economic growth is ex-pected to taper off and inflation is expected to remain subdued, we believe BNM will hold the OPR unchanged at 3.25% till year end and potentially next year, in ensuring price stability and to remain supportive of growth,” it said.


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