The economy in 2Q2017 grew slightly faster at 3.1% from the previous estimate of 3.0% and 1Q2017’s 1.2%. It is the fastest pace in more than two years. The upwards revision was due to a slightly faster pace of inventories and business investment in structures. With the GDP accelerating in 2Q2017, the 1H2017 average growth now stands at 2.1%. We believe the economy is unlikely to meet the 3.0% target set by the US president despite the recent announcement of the biggest tax overhaul in three decades which seems to have limited details on how the tax cuts would be paid.

We reiterate our growth projection of 2.2% – 2.5% for 2017. We foresee the 3Q2017 GDP registering a slower growth of around 2.2% – 2.4% due to the impact from Hurricane Harvey which struck Texas, and Irma in Florida. However, we expect the rebuilding to boost the GDP growth in 4Q2017 and in early 2018. Meanwhile, we maintain our view that the US Fed is expected to raise rates in December by 25 basis points, partly supported by a still healthy labour market and better adjusted pre-tax corporate profits seen in 2Q2017. Thus our MYR outlook against the USD remains unchanged with the full-year average at 4.31–33 and intraday range around 4.10–12. We reiterate our MYR fair value at 3.95 against the USD based on our fundamental analysis.

• The economy in 2Q2017 grew slightly faster at 3.1% from the previous estimate of 3.0% and 1Q2017’s 1.2%. It is the fastest pace in more than two years. The upwards revision was due to a slightly faster pace of inventories. Consumer spending remained unchanged at 3.3% while business investment in structures rose a stronger 7% instead of 6.2%. Exports were revised to show a smaller 3.5% gain with imports advancing by 1.5%.

• With the GDP accelerating in 2Q2017, the 1H2017 average growth now stands at 2.1%. We believe the economy is unlikely to meet the 3.0% target set by the US president. Though the president unveiled the biggest tax overhaul in three decades, including lowering the corporate income tax rate to 20% and implementing a new 25% tax rate for pass-through businesses such as partnerships to boost the economy, it has limited details on how the tax cuts would be paid for without increasing the budget deficit and national debt.

• We reiterate our growth projection of 2.2% – 2.5% for 2017. We now foresee the 3Q2017 GDP to register a slower growth of around 2.2% – 2.4%. The impact from Hurricane Harvey, which struck Texas took a toll with declines in retail sales, industrial production, homebuilding and home sales in August. Further weakness is anticipated in September after Irma slammed into Florida early this month. However, we expect the rebuilding to boost the GDP growth in 4Q2017 and in early 2018.

• We maintain our view that the US Fed is expected to raise rates in December by 25 basis points. Our probability for a rate hike in December is still at 75%. Partly supporting our view is the adjusted pre-tax corporate profits that climbed 0.7% to an annualized US$2.12tril, rebounding from a decline in the first quarter.

• Also, the whack from the recent hurricanes will be temporary, taking a hit on 3Q2017 performance. Though the impact from Harvey and Irma continue to hurt the labour market and are expected to cut into job growth in September, we still find the labour market resilient. Claims have now been below the 300,000-threshold, which is associated with a robust labor market, for 134 straight weeks. That is the longest such stretch since 1970, when the labour market was smaller.

• Thus our MYR outlook against the USD remains unchanged with the full-year average at 4.31–33 and intraday range around 4.10–12. We reiterate our MYR fair value at 3.95 against the USD based on our fundamental analysis.

Source: AmInvest Research - 29 Sept 2017