The Week Ahead: Ringgit, October inflation and US Fed minutes in focus

This article first appeared in The Edge Malaysia Weekly, on November 27, 2017 - December 03, 2017.
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THE ringgit, which strengthened to its best level in more than a year against the greenback last week, remains on the radar screen this week as markets contemplate news of better-than-expected economic growth and a possible interest rate hike as early as January.

After the excitement from yet another higher-than-expected gross domestic product (GDP) growth — 6.2% for the third quarter of the year — the attention turns to inflation numbers this week. Inflation is one of the factors considered by interest rate setters.

On Wednesday, the Department of Statistics Malaysia will release the Consumer Price Index (CPI) for October. During the month, there was a larger increase in petrol pump prices than September, when headline inflation jumped to 4.3% from 3.7% in August on the back of movements in global oil prices.

From as low as RM1.89 in late June this year, pump prices for RON95 have increased 49 sen a litre, or nearly 26% in 4½ months, to reach RM2.38 a litre as at Nov 16.

Central bank governor Tan Sri Muhammad Ibrahim last Friday maintained the 2017 headline inflation forecast at 3% to 4%. He expects the numbers to moderate next year but said global oil prices remain highly uncertain. Headline inflation did moderate to 3.8% in the third quarter from 4% in the second quarter of this year due to lower transport inflation, despite local RON95 fuel prices averaging at RM2.09 a litre in 3Q2017 compared with RM2.10 in 2Q2017. For the first nine months of the year, the inflation reading was at 4% — the upper end of the official forecast of 3% to 4%.

UOB Malaysia economist Julia Goh, in a recent note, says inflation was expected to “remain elevated” at over 4% in October, given the lower base and higher Brent crude oil prices of US$55 to US$60. She expects inflation to average 3.9% this year before easing to 2.5% in 2018.

There is growing expectation of Bank Negara Malaysia raising interest rates by 25 basis points as early as January next year. The Monetary Policy Committee is slated to meet on Jan 25, March 7, May 10, July 11, Sept 5 and Nov 8 next year. The central bank’s foreign reserves for mid-November will be known on Wednesday.

The ringgit, which reached 4.1563 against the US dollar at the time of writing last Friday, also firmed against the Singapore dollar — reaching 3.0660 at press time, which is also close to a one-year high.

The strength of the ringgit against the Singapore dollar could be tested this week, if Singapore revises upwards its 2017 full-year GDP growth forecast of 2% to 3% when it releases the final 3Q GDP figures on Nov 23. Advance estimates released in October showed the city state’s economy growing at 4.6% in 3Q2017 — the strongest pace since 1Q2014 and a lot higher than the 2.9% in 2Q2017, helped by manufacturing.

Singapore is also slated to release October CPI data on Nov 23 and industrial production data for the same month on Nov 24. Singapore uses its currency to manage inflation.

Also in focus is Thailand’s 3Q GDP release as well as European Central Bank chief Mario Draghi’s address in European parliament on Monday. On Tuesday, the Federal Open Market Committee will release minutes from its October policy meeting. On Wednesday, the UK’s Chancellor of the Exchequer Philip Hammond is scheduled to make his Autumn Budget statement.

News flow ahead of the Organization of the Petroleum Exporting Countries meeting in Vienna on Nov 30 — where expectations are for an extension of the oil supply cut pact beyond March next year — are likely to be keenly followed for clues on global oil prices. On Nov 16, the International Energy Agency said the US is expected to account for more than 80% of global oil production growth in the next 10 years and will produce 30% more gas than Russia by then.

On the local corporate scene, the third-quarter earnings reporting season is picking up speed. Companies scheduled to release third-quarter results this week include Axiata Group Bhd, Telekom Malaysia Bhd, Kuala Lumpur Kepong Bhd, UEM Sunrise Bhd, Uchi Technologies Bhd, Kossan Rubber Industries Bhd, WCT Holdings Bhd, KPJ Healthcare Bhd, UOA Development Bhd, Kawan Food Bhd and Malaysian Resources Corp Bhd. Karex Bhd, Inari Amertron Bhd and YTL Corp Bhd are set to release first-quarter numbers while Supermax Corp Bhd will unveil its fourth-quarter earnings.

Companies slated to have annual general meetings this week include Sime Darby Bhd, Supermax, Parkson Holdings Bhd, Inari, Dialog Group Bhd, Ekovest Bhd, Perisai Petroleum Teknologi Bhd, Coastal Contracts Bhd, Malton Bhd and Insas Bhd. Meanwhile, those holding extraordinary general meetings include TA Global Bhd, Econpile Holdings Bhd and Goldis Bhd.