Malaysia

Slower exports into 2019

Exports decelerated more than expected to 1.6% y/y in November while imports slowed down to 5.0% y/y in November. Thus, trade surplus narrowed to RM7.6bil from RM16.3bil in October.

Slower exports were due to weak electrical & electronics (E&E) and mixed results from resource-based segments. In the meantime, the slower imports were dragged by intermediate goods, added with a moderating consumption imports.

We expect exports in 2018 to come in around 7.2% y/y from 18.8% y/y in 2017. Moving into 2019, we forecast exports to grow modestly by 5.0% underpinned by moderate global growth, which we project at 3.4%. The GDP growth for 2019 is expected at 4.5% supported by domestic demand with BNM keeping the OPR rate unchanged at 3.25% to support growth.

• In November, exports decelerated more than expected to 1.6% y/y in November compared to 17.7% y/y in October, missing market and our expectations of 6.6% and 3.0%, respectively. Hence, the year-to-date (YTD) average growth was at 7.0%. Similarly, imports slowed down to 5.0% y/y in November from 11.4% y/y in October, bringing YTD average to 5.5%. With imports outpacing exports, trade surplus narrowed to RM7.6bil from RM16.3bil in October.

• The slower exports were largely contributed by a decline in the electrical & electronics (E&E) segment of business activities, down 1.7% y/y from a gain of 23.3% y/y in October. Apart from high base effect, the latest reading was due to the decelerating global tech cycle. Nonetheless, this segment will be supported by automotive as well as Internet of things (IoT).

• Other significant export components that recorded a decline are palm oil & palm oil products and timber, down 21.1% y/y and 7.5% y/y in November versus -17.3% y/y and 12.8% y/y in October. Exports revenue that contributed positively includes petroleum products (41.2% y/y from 31.2% y/y), chemical products (15.1% y/y from 36.5% y/y) and LNG (26.4% y/y from 2.6% y/y).

• In the meantime, the slower imports were driven by a decline in intermediate goods, down 0.3% y/y in November from a gain of 1.1% y/y in October, added with a moderating consumption imports, up 0.9% y/y compared with 7.7% y/y in October. Nonetheless, capital imports recorded a slight contribution of 0.4% y/y in November after two consecutive months of declining growth, supported by a surge of 168% y/y in industrial transport equipment. However, capital goods ex-transport equipment contracted by 10.1% y/y.

• We expect exports in 2018 to come in around 7.2% y/y from 18.8% y/y in 2017. Moving into 2019, we forecast exports to grow modestly by 5.0% underpinned by moderate global growth, which we project at 3.4%. The GDP growth for 2019 is expected at 4.5% supported by domestic demand with BNM keeping the OPR rate unchanged at 3.25% to support growth.

US

Fed will remain data dependent

The labour market blew market expectations with the largest expansion since February 2018 as non-farm payroll added 312K jobs in December from 155K in November. Meanwhile, unemployment in December edged higher to 3.9% from 3.7% with the labour participation rate picking up to 63.1% in December from 62.9% in November, suggesting more people are entering the workforce.

The tightening job market pushed hourly wages higher by 3.2 y/y from 3.1% y/y in November, bringing 2018’s wage growth to 2.8% y/y from 2.5% y/y in 2017.

We believe the Fed will continue to remain data dependent as the labour market data deemed lagging variable. At the same time, the central bank has indicated some flexibility in the monetary course following the recent speech from the Fed’s Powell, citing amid low inflation, the Fed to be “patient” and the central bank was ready to change course “significantly if necessary”. We expect the Fed to maintain one or two rate hikes in 2019 with its policy depending on potential incoming data.

• The labour market blew market expectations with the largest expansion since February 2018 as non-farm payroll reported that the economy added 312K jobs in December from 155K in November, (cons:177K). The healthcare industry was the power house behind the surge in employment, adding 50K jobs in December, accompanied by food service (41K), construction (38K) and manufacturing (32K). Nonetheless, payroll employment rose by 2.6mil in 2018 compared with a gain of 2.2mil in 2017.

• Meanwhile, unemployment in December edged higher to 3.9% from 3.7%, but labour participation rate picked up to 63.1% in December from 62.9% in November, suggesting more people are entering the workforce.

• The tightening job market also pushed hourly wages to grow by 0.4% m/m higher in December versus a gain of 0.2% m/m in November. On an annual basis, wages grew by 3.2 y/y from 3.1% y/y in November, bringing 2018’s wage growth at 2.8% y/y from 2.5% y/y in 2017.

• Despite the upbeat labour market data, we believe the Fed will continue to remain data dependent as the labour market data deemed lagging variable. At the same time, the central bank has indicated some flexibility in the monetary course following the recent speech from the Fed’s Powell, citing amid low inflation, the Fed to be “patient” and the central bank was ready to change course “significantly if necessary”. We expect the Fed to maintain one or two rate hikes in 2019 with its policy depending on potential incoming data.

Source: AmInvest Research - 7 Jan 2019