The Week Ahead: US Fed’s interest rate decision to take centre stage

This article first appeared in The Edge Malaysia Weekly, on October 28, 2019 - November 03, 2019.
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This week’s US Federal Reserve (Fed) policy meeting is likely to take centre stage around the world, including in Malaysia. The Federal Open Market Committee will meet on Wednesday (Oct 30) to decide on key interest rates, with markets expecting rates to be cut for a third time this year.

A Bloomberg poll shows that 33 of 61 economists expect the Fed to take a pause, says UOB Research, although market expectations for a quarter-point rate cut are high at 93.5%.

At this point, a signal of a “hawkish cut” by the Fed could send the USD/MYR towards 4.20, says FXTM market analyst Han Tan.

“Increased risk appetite or a pronounced decline in the US dollar could send the currency pair below the psychological 4.18 level, only to be met with stronger support at the 4.16 mark,” he adds.

On the same day, Canada will be holding its monetary policy meeting. The expectation is for its policy interest rate to remain unchanged at 1.75%.

One day after the Fed’s meeting, the Bank of Japan (BOJ) will be having its monetary policy meeting. It was recently reported that the BOJ had signalled in its September meeting the chance of expanding stimulus as early as its  next policy meeting.  Nevertheless, a recent Bloomberg report said the BOJ is considering refraining from extra stimulus at its meeting this month. Instead, it will look for new ways to show its readiness to take action.

Brexit remains at the forefront, with UK Prime Minister Boris Johnson seeking a Dec 12 election on Monday if the European Union were to postpone the Brexit deadline to Jan 31 next year, as expected.

On the corporate front, investors will be kept busy with a slew of earnings announcements by US companies. It is considered the peak of the earnings season with 150 companies looking to announce their earnings next week.

Companies that will be closely watched include AT&T Inc, Alphabet Inc, General Electric Co, Apple Inc and Facebook Inc.

In Asia, some key economic data will be released this week. China will release is official manufacturing and non-manufacturing Purchasing Managers Index (PMI) surveys for October. A Bloomberg poll forecasts the PMI to stay unchanged at 49.8 points from the previous month, while the non-manufacturing PMI could inch up 53.8 points from 53.7 in September.

Hong Kong will be releasing its third-quarter 2019 gross domestic data on Thursday, which is stirring interest given the protests that have rocked the city’s market and economy in recent times. The expectation is that the GDP will likely contract 0.1% year on year in 3Q2019 — the first decline since 3Q 2009.

On the local front, it will be a relatively quiet week as it will start off with a public holiday for the Deepavali celebration.

Bank Negara Malaysia will be releasing its monthly highlights and statistics for September on Thursday (Oct 31). All eyes will be on whether there will be an uptick in non-performing loans, which have been creeping up since the beginning of the year.

Gross impaired loans for the banking industry increased 1.2% month on month in August. However, it was lower than July’s m-o-m rise of 1.7%, notes AmInvestment Research in a report.

In August, loan by purpose saw an uptick, largely driven by higher impairment of loans for purchase of residential property, personal financing and for construction and working capital. In terms of sectors, impairments continue to rise in manufacturing, construction and households, says the research firm.

In absolute terms, total impaired loans increased to RM27.93 billion in August from RM25.33 billion in January.

The week will also see several annual general meetings, including those of Apollo Food Holdings Bhd, Guocoland Bhd, Hong Leong Financial Group Bhd and CI Holdings Bhd.

Meanwhile, the legal tussle between JF Apex Securities and Apex Equity and six others versus Pinerains Sdn Bhd is set to continue in court this week. Apex Equity is being sued over a proposed merger with Mercury Securities and several corporate exercises, including share buybacks in the past. The case is being heard in the Court of Appeal.

Former prime minister Datuk Seri Najib Razak’s 1Malaysia Development Bhd-Tanore trial will also resume on Tuesday (Oct 29).

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