This article first appeared in The Edge Malaysia Weekly on February 4, 2019 - February 10, 2019
It is expected to be a relatively quiet week with Bursa Malaysia closed from the Monday afternoon session until Wednesday for Chinese New Year. With traders expected to be on an extended break, and in the absence key catalysts at home, corporate earnings in the US are likely to take centre stage.
Corporate giants Alphabet Inc (Google’s parent), General Motors Co and Philip Morris Inc are among those expected to announce FY2018 earnings.
Markets in China and Vietnam will be closed for the whole week for the lunar new year while, in Hong Kong, they will be shut for just the first three days. Singapore’s markets are closed on the same days as Malaysia’s.
News about the status of the East Coast Rail Link (ECRL) project could be imminent. As at press time last Friday, Prime Minister Tun Dr Mahathir Mohamad had yet to announce if the mega project is on or off. He told reporters on Friday evening that negotiations on the fate of the project were ongoing and he hoped a decision could be reached “as soon as possible”.
China offered to nearly halve the cost of the RM81 billion rail project, Reuters reported on Jan 31, citing two unnanmed sources. Contractor China Communications Construction Co Ltd had offered to cut construction costs of the 688km rail link from RM67 billion to as low as half the sum, the sources said.
At home, the only key data out this week is the January reading of the Nikkei Malaysia Manufacturing Purchasing Managers’ Index (PMI), on Monday. It will be closely watched as the December reading — at 46.8 points, down from 48.2 in November — was the worst that the manufacturing sector had ever recorded in the survey’s 6½-year history. A reading of above 50 points indicates an expansion and below 50, a contraction.
Economist Joe Hayes of IHS Markit, which compiles the survey, noted that negative readings of the PMI have been recorded across each month of 4Q2018, signalling that the goods-producing sector is likely to heavily weigh on the final gross domestic product print of 2018.
“With production falling, firms cut back stocks of inputs and finished goods, suggesting that prospects for the start of 2019 are likely to remain negative,” he said.
Bank Negara Malaysia is expected to announce the 2018 GDP figure on Feb 14.
Indonesia will release its fourth-quarter GDP data on Wednesday. There are indications that Southeast Asia’s largest economy is slowing as its 3Q2018 GDP growth came in at 5.17% year on year, compared with 5.27% in 2Q2018. A Bloomberg survey median points to slightly slower 4Q2018 growth of 5.14%, bringing full-year growth to 5.16% in 2018.
Indonesia’s Finance Minister Sri Mulyani Indrawati recently said that the country’s economic growth was estimated to reach 5.15% in 2018, falling short of the 5.4% target set in the state budget. Bank Indonesia expects GDP this year to grow 5% to 5.4%, slightly lower than its initial projection of 5.1% to 5.5%.
Four major Asia-Pacific central banks have monetary policy decisions this week, starting with those in Australia and Thailand on Feb 5, followed by India and the Philippines on Feb 6.
Thailand’s policy is expected to remain unchanged. The Bank of Thailand had in December raised the one-day repurchase rate by 25 basis points to 1.75%, a level it said “would remain accommodative and conducive to growth across economic sectors”. The December rate hike was its first since 2011.
In the Philippines, however, there are mixed views, with some expecting the country’s central bank to loosen policy this year, after the economy grew slower than expected in the fourth quarter of last year. The central bank raised rates five times last year, by 175bps in total, to combat inflation.
China will release foreign reserves data on Thursday.
There may be a slew of data releases in the US after its government reopened last week following a five-week partial shutdown, the longest in US history. On Jan 26, US President Donald Trump announced he had reached a compromise to reopen the federal government until Feb 15 while a long-term budget is negotiated, including a border wall.
Among the data that is scheduled — but not confirmed — to be released are December factory orders (Feb 4), trade data (Feb 5) and the Markit US Services PMI and Composite PMI readings for January (Feb 5).
Trump’s State of the Union address will be held on Feb 5. “We expect President Trump to talk about his successes on trade talks, his insistence on a wall for border security and he will most likely reserve his harshest criticisms for House Speaker Democrat Nancy Pelosi. Trump may also take the opportunity to talk about his upcoming second summit with [North Korean leader] Kim Jong-un [in February],” says UOB Global Economics and Markets Research in an outlook report last Friday.
In the UK, the Bank of England has a monetary policy decision on Feb 7. It is widely expected to keep interest rates unchanged.
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