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The Week Ahead: Bank Negara’s OPR decision, China-US talks in focus

TheEdge Mon, May 06, 2019 03:00pm - 1 year ago

The key focus at home this week will be on Bank Negara Malaysia’s monetary policy decision (May 7), March industrial production data (May 10) and the continuing trial of former premier Datuk Seri Najib Razak on corruption charges relating to SRC International Sdn Bhd.

The Muslim holy month of Ramadan starts on May 6.

On Tuesday, all eyes will be on Bank Negara to see if it cuts the overnight policy rate. Most economists expect the central bank to cut the OPR by 25 basis points (bps) but are divided on whether it will happen as early as this week.

Deutsche Bank Research sees Bank Negara delivering a 25bps cut on Tuesday.

“Having said that, the risk to our call has increased following the last couple of weeks’ increased financial market volatility. However, we continue to look for monetary easing at the upcoming meeting, keeping in mind Bank Negara’s history of ignoring transient market volatility in its monetary decision-making process,” it says in a May 2 note to clients.

Bank Negara’s decision comes just a week after the US Federal Reserve left its key benchmark rate unchanged despite renewed calls by President Donald Trump to cut interest rates. Policymakers unanimously agreed to leave rates alone, keeping with a wait-and-see attitude amid uncertainty about where the world’s largest economy is headed.

On Friday, the Department of Statistics will release March Industrial Production Index data. In February, the IPI — a measure of factory output from the manufacturing, electricity generation and mining sectors — grew a mere 1.7% year on year, its slowest in eight months.

Investors will also closely monitor the next round of US-China trade talks in Washington on May 8, as Chinese Vice-Premier Liu He returns for further negotiations to end the trade dispute. American officials were in Beijing last week, where they claimed to have had “productive” talks with their Chinese counterparts.

Based on press reports, there is anticipation that the world’s two biggest economies may announce a trade deal by May 10, paving the way for a late May signing summit between Trump and China’s President Xi Jinping after the former’s trip to Japan (May 26 to 28).

UOB Malaysia does not expect the US to fully lift the import tariffs on Chinese products immediately even after a trade deal is signed. Thus, it is keeping its export growth forecast for Malaysia at 4% to 5% for this year (2018: 6.8%).

Data last Friday showed that Malaysian exports contracted for the second straight month in March, but at a far smaller pace of 0.5% year on year compared with 5.3% in February.

Meanwhile, China’s workforce returns from last week’s three-day Labour Day holiday. A slew of data is expected, including April trade numbers (May 5), inflation and the Producer Price Index (both on May 9).

It will continue to be a busy week for corporate earnings in the US. Key data expected include March trade numbers (May 9) and April inflation (May 10).

Other Asian central banks with monetary policy decisions this week are the Reserve Bank of Australia (RBA) on May 7, Reserve Bank of New Zealand (RBNZ) and Bank of Thailand on May 8, and Bangko Sentral ng Pilipinas (BSP) on May 9.

RBA and RBNZ are expected to maintain their interest rates while BSP may cut its overnight borrowing rate and deposit facility by 25bps to 4.5% and 4% respectively.

Indonesia and the Philippines are set to announce their first quarter gross domestic product (GDP) numbers on May 6 and May 9 respectively.

On Monday, South Korea’s markets will close for Children’s Day while Thailand will continue with an elaborate coronation ceremony for King Maha Vajiralongkorn Bodindradebayavarangkun, 66, which began on May 4. He inherited the throne following the death of his revered father King Bhumibol Adulyadej in 2016.

Japan’s financial markets will close Monday and resume for business from Tuesday onwards after an unprecedented 10-day break to celebrate the accession of Emperor Naruhito to the throne.

It will be a short week for the UK, with financial markets closed on Monday for a bank holiday. On May 10, preliminary first-quarter GDP data will be released as well as March trade numbers.

Back home, companies with annual general meetings include Tien Wah Press Holdings Bhd (May 6), Dufu Technology Corp Bhd (May 7), Globetronics Technology Bhd (May 8), Syarikat Takaful Malaysia Keluarga Bhd and MMC Corp Bhd (both on May 9), and Media Prima Bhd (May 10).

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