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This article first appeared in The Edge Malaysia Weekly on September 17, 2018 - September 23, 2018

It is another holiday-shortened week for Malaysia as the country takes Monday off in lieu of Malaysia Day on Sunday. In any case, the only major economic data out this week will be August’s Consumer Price Index, to be released on Wednesday.

Economists polled by Bloom­berg expect inflation to come in at an average of 0.4%, lower than the 0.9% recorded in July.

August was the last month of the tax holiday for consumers following the zero-isation of the Goods and Services Tax in June and before the return of the Sales and Services Tax (SST) this month.

Socio-Economic Research Centre executive director Lee Heng Guie expects August’s CPI to remain subdued, rising 0.7% or 0.8%  year on year due to the tax holiday and says the September data will be the one to watch.

“Because we will be watching to see whether the SST will lead to stable prices or perhaps show a slight decrease since, within the CPI basket, 38% of goods are taxed under SST compared with 60% under GST,” he says.

Bank Negara Malaysia, in its Monetary Policy Statement on Sept 5, says headline inflation is expected to “edge upwards” going forward and into 2019 due to the impact of “policy measures” — likely referring to SST. It did say that the impact of changes in the consumption tax policy on inflation is expected to be “transitory and lapse” towards the end of next year.

Bank Negara adds that it sees underlying inflation remaining relatively stable.

Note that the central bank did not change its full-year forecast despite saying in July that it expected inflation to be lower than its earlier forecast of 2% to 3%.

“While the ringgit could edge higher if inflation in August meets or exceeds expectations, the currency’s outlook remains pegged to external factors. If the improving risk sentiment boosts appetite for emerging market (EM) currencies and encourages investors to offload their holdings of the dollar, the ringgit could edge higher,” says Lukman Otunuga, research analyst at foreign exchange broker FXTM.

He noted that after last week’s volatility, which saw investors juggling global trade tensions and central bank policy decisions, the possibility of trade talks between China and US revived risk sentiment while dollar weakness offered EMs some breathing space.

“With the Turkish lira roaring back to life after Turkey’s central bank displayed independence by raising rates sharply, EM currencies have a chance to bounce back,” Otunuga says.

Last Thursday, Turkey’s central bank raised its main interest rate to 24% from 17.75%, sending the Turkish lira 5% higher against the US dollar.

“Technical traders will continue to closely observe how prices behave above 4.140. A breakdown below this level could encourage a decline towards 4.136 in the near term and 4.129 in the medium term,” Otunuga says on the outlook for the ringgit.

At Friday’s close, a US dollar buys RM4.1385, compared with 4.1470 at the start of the week.

Outside Malaysia, there are a handful of economic data from the region but Super Typhoon Mangkhut could grab headlines as it was forecast to hit the Philippines on Sept 15 before moving on to Taiwan, Hong Kong and the Guangdong coast in China.

The storm could worsen congestion at the ports of Kaohsiung, Hong Kong, Guangzhou, Nansha and Xiahudao, increasing berthing delays, according to Eastport Research & Strategy.

However, unlike Typhoon Haiyan — which devastated coconut plantations in the southern Philippines in 2013 leading to higher shipment of palm oil to the country — Mangkhut appears to be heading to the north.

Meanwhile, markets will be monitoring the US’ overture to China after Washington reached out to Beijing last Wednesday to restart trade talks.

“While things could still take a turn for the worse, for now, the prospect of another round of negotiations will be welcomed by the markets even as we wait for confirmation of the commencement of the proposed 25% [tariff on] the US$200 billion of China goods and the retaliation from China,” says UOB Global Economics & Markets Research in a note last Friday.

Key data or events this week from around the region include August’s non-oil domestic exports from Singapore, Indonesia’s trade numbers, Australia’s house prices for the second quarter, and the Bank of Thailand monetary policy decision.

At the time of writing, Hurricane Florence was expected to make landfall on the border of North and South Carolina in the US on Sept 14. While it has been downgraded to a Category 1 storm, Hurricane Florence has grown in size, according to media reports.

According to Moody’s Analytics, Hurricane Florence could slow US economic growth by a few tenths of a percentage point on an annual basis in the quarter ending September.

“It remains too early to calculate the impact on US gross domestic product, but if we use the previous episode of Hurricane Katrina (August 2005, a Category 5) as comparison, we note that US growth was at a healthy 3.4% in 3Q2005 but slipped lower to 2.3% in 4Q before rebounding strongly by 4.9% in 1Q2006.

“In comparison, in September last year (Hurricane Harvey, Category 4), growth slowed from 3% in 2Q, to 2.8% in 3Q, to 2.3% in 4Q and 2.2% in 1Q2018, although the weather may not have been the only factor affecting the growth path,” says UOB.

On the data front, the US will see housing data and the Markit manufacturing and services Purchasing Managers’ Index surveys released this week.

Also happening this week in Kuala Lumpur — for the second time in 22 years — is the Conference of Electric Supply Industry, hosted by Tenaga Nasional Bhd on behalf of the Association of the Electricity Supply Industry of East Asia and Western Pacific. Prime Minister Tun Dr Mahathir Mohamad will attend as well as Minister of Energy, Science, Technology, Environment and Climate Change Yeo Bee Yin along with the who’s who of the power industry.

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