The week ahead: Renewed US-China tensions, Malaysia’s inflation rate in focus

This article first appeared in The Edge Malaysia Weekly, on June 22, 2020 - June 28, 2020.
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Renewed trade tensions between the US and China are expected to cloud the global economic outlook as US President Donald Trump last week threatened to cut ties with China. This came a day after US Trade Representative Robert Lighthizer told Congress he did not see the decoupling of the US and Chinese economies as a viable option.

The International Monetary Fund (IMF) will release its latest World Economic Outlook Update on Wednesday. UOB Research says it is likely to show GDP contracting far more than previously estimated.

In its April update, the IMF downgraded global growth to -3%, while in June the World Bank estimated global GDP would likely contract by 5.2% in 2020. The Organisation for Economic Co-operation and Development (OECD) estimated 2020 global contraction to be between 6% and 7.6%.

On Tuesday, there will be a slew of manufacturing and services Purchasing Managers’ Index (PMI) releases from the US, eurozone, Japan, the UK and Australia, which could provide clues on the length and depth of recessions caused by the Covid-19 pandemic.

“The PMI surveys provided an early indication that the worst of the economic impact from the virus outbreak appears to have hit in April, with the global PMI staging a record rise in May, albeit remaining worryingly weak by historical standards. With lockdowns having increasingly eased into June, further gains in the PMI will be needed to corroborate growing expectations that economic recoveries are gaining traction,” says IHS Markit in its economic preview note.

At home, the Consumer Price Index (CPI) will be in focus following two months of deflation in March and April. The Department of Statistics is scheduled to release the latest May data on Wednesday. In April, the CPI contracted by 2.9% — the sharpest fall since 2010, due to a drop in the prices of transport, housing, water, electricity and fuel.

On the same day, the Leading, Coincident & Lagging indices will be announced to gauge the direction of the economy in the next few months. Note that the Leading Indicator for March was its largest monthly drop since November 1991.

Bank Negara Malaysia will be releasing the statement of accounts as at June 15 on Monday. International reserves rose to US$102.9 billion (RM439.9 billion) as at May 29 from US$102.6 billion as at May 15.

Within the region, Thailand and New Zealand will be making their interest rate decision on Wednesday. Last month, Thailand’s central bank cut its benchmark interest rate for the third time this year to a record low of 0.5% because of the economic fallout from the Covid-19 pandemic. Thailand’s economy contracted at its sharpest pace in eight years in 1Q, declining 1.8% as Covid-19 hit its tourism and domestic activity.

The Reserve Bank of New Zealand also left its official cash rate at 0.25%, but noted that it is prepared to use additional tools “if and when needed”, including further cuts and expanding its quantitative easing programme to include foreign assets. Its economy shrank 1.6% in 1Q, the largest drop in 29 years and the first quarterly fall since December 2010.

The Philippines will be holding its monetary policy meeting on Thursday. UOB Research believes its overnight reverse repurchase rate will be maintained at 2.75% for the rest of the year.

Other economic data releases include Singapore’s May industrial production (June 26), the US’ jobless claims (June 25) and Taiwan’s May industrial production (June 23).

The Hong Kong market will be closed on Thursday for the Dragon Boat Festival, while the China and Taiwan markets will be closed on both Thursday and Friday.

On local politics, the feud between the political figures in Pakatan Harapan will be closely monitored as the coalition may make an announcement on its candidates for prime minister and deputy prime minister.

Separately, the Kuala Lumpur High Court is set to hear the submissions of both parties in the

1Malaysia Development Bhd (1MDB) audit tampering trial on Wednesday following the prosecution’s application to amend the charges levelled against former prime minister Datuk Seri Najib Razak and former 1MDB president and CEO Arul Kanda Kandasamy.

On the corporate front, companies holding annual general meetings this week include Star Media Group Bhd, Genting Bhd, Genting Malaysia Bhd, SP Setia Bhd and MMC Corp Bhd (June 22), UMW Holdings Bhd and Petronas Gas Bhd (June 25), and Malayan Banking Bhd, MISC Bhd and Leong Hup International Bhd (June 26).

Meanwhile, Kumpulan Powernet Bhd and Mlabs Systems Bhd will be seeking shareholders’ approval this week for their proposed private placement exercises of RM48.37 million and RM6.5 million respectively.

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