The Week Ahead: OPR, trade data and East Asia summit in focus

TheEdge Mon, Nov 04, 2019 03:00pm - 4 years View Original


Key events that will be closely watched this week include Bank Negara Malaysia’s final monetary policy meeting for the year on Tuesday and the release of September trade data by the Department of Statistics on Monday.

A Bloomberg survey of economists sees Bank Negara leaving the overnight policy rate (OPR) unchanged at 3%.

Attention will also be focused on news from the East Asia Summit that starts on Monday in Bangkok, an annual gathering of leaders that follows the three-day 35th Asean summit that kicked off in the Thai capital last Saturday. China Premier Li Keqiang, Japan’s Prime Minister Shinzo Abe and South Korea’s President Moon Jae-In are attending.

Prime Minister Tun Dr Mahathir Mohamad, who left for Bangkok last Friday, was scheduled to attend at least eight summit meetings with leaders from the grouping and the region, and two bilateral meetings with his Thai counterpart General Prayut Chan-o-cha and Australian Prime Minister Scott Morrison.

There is a stronger focus than usual on the East Asia Summit now that the Asia-Pacific Economic Cooperation (APEC) summit — meant to be held in Chile on Nov 16 and 17 — has been cancelled. Host country Chile called off the summit last week due to violent street protests.

US President Donald Trump and his Chinese counterpart Xi Jinping were to have inked “Phase One” of a US-China trade agreement there. Trump said last Thursday that the two parties would announce a new location for the signing soon.

“China and the US are working on selecting a new site for signing of Phase One of Trade Agreement, about 60% of total deal, after APEC in Chile was canceled do [sic] to unrelated circumstances,” he tweeted.

Trump is, however, not attending any of the Asean summits, for the second straight year. National security adviser Robert O’Brien and Commerce Secretary Wilbur Ross will be representing him.

The 1Malaysia Development Bhd-Tanore trial, which resumes on Monday, will remain a major focus with former 1MDB CEO Datuk Shahrol Azral Ibrahim Halmi continuing to testify.

On Tuesday, economists expect Bank Negara to stand pat on the OPR even though the US Federal Reserve cut its benchmark interest rates last Wednesday, for the third time this year, in a widely expected move to guard against a slowing US economy. The Fed slashed rates by 25 basis points to between 1.5% and 1.75%, and signalled that it would refrain from further cuts unless the economy slowed sharply.

“As the Fed’s next move appears to be clearer and signals no further cuts, we expect it would also lower the probability and the likelihood of Bank Negara cutting interest rates,” says Kenanga Research.

However, it remains cautious on the country’s growth outlook going forward. “Although there seemed to be some positive signals that the US-China trade deal would be concluded soon, the impact of higher tariffs would still weigh on global trade and growth. It is still hard to foresee any signs that would trigger a speedy and sustainable turnaround in global growth anytime soon. This would mean that Malaysia’s growth drivers — manufacturing and exports — would continue to be weak for at least another 6 to 12 months,” it adds.

The last time Bank Negara made an adjustment to the OPR was on May 7, when it slashed the benchmark interest rate by 25bps — its first rate cut since July 2016.

Other key central banks with a monetary policy decisions this week are the Reserve Bank of Australia (Tuesday), the Bank of Thailand (Wednesday) and the Bank of England (Thursday). All are expected to keep rates unchanged, with the exception of Bank of Thailand which may cut rates by 25bps.

“The Bank of England (BoE) is widely expected to keep its policy rate unchanged at 0.75% as Brexit uncertainty still lingers, and we would thus expect the BoE to strike a cautious note,” UOB Global Economics and Markets Research says in a Nov 1 outlook report.

Indonesia and the Philippines will announce their third-quarter gross domestic product data on Monday and Thursday respectively.

Over in the US, corporate earnings will be in focus, as will domestic politics. On Oct 31, the House of Representatives voted 232-196 to endorse the Democratic-led impeachment inquiry into Trump, setting out rules for the investigation, which will soon go public.

The US will also release September trade data on Tuesday, while China will release October trade data on Friday. It will be interesting to see how the world’s two largest economies are faring amid their prolonged trade spat.

Japanese markets will be closed on Monday for the Cultural Day holiday.

Back home, companies with annual general meetings include IOI Properties Group Bhd, Gadang Holdings Bhd, Hong Leong Industries Bhd, Malaysian Pacific Industries Bhd (all on Wednesday), Hume Industries Bhd (Thursday) and Plenitude Bhd (Friday).

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