• Brent crude hit a new high this year.. could go higher as winter season looms.

• Will the Fed or will the Fed not adjust the FFR next week?

It was a volatile week yet again for the global equity market last week though FBMKLCI emerged unscathed for the week. It added a cool +0.3% on a WoW basis, alongside regional winners JCI (+0.8%) and STI (+2.3%), ahead of the region’s laggard like PCOMP (-0.3%) and SET (-1.6%). Global benchmark index, DJIA, could have made it higher on WoW basis if not for the carnage last Friday where the index gave-up 288.37-points, pushing it to gain a mere 0.1% for the week. Ringgit performed worst nonetheless, closing the week at RM4.6830 per Dollar, a new low since November last year, which remained at the mercy of Dollar which continued to steam rolled all global currencies. At the closing of the week, Dollar Index remained on the rise after charting a new high of 105.322, a new peak since March 2023, essentially erasing the much-deserved gains made from April onwards. The rise of the Dollar was indeed a pain which showed no sign of slowing down amid the index that closed at 105.090 just a week ago and 103.920 a month ago. The index added 1.3% in just one month and Yen emerged at the biggest casualty. Global equity market was about to rejoice that the Fed could be close to reach the end of its interest rate tightening cycle when oil price emerged as the party killer suddenly. Using Brent crude as a benchmark, global oil price has clocked-in an impressive week after touching USD93.93 per barrel, a new high since November 2022 and noticeably higher against a week before (USD90.65 per barrel). The concerted effort to push the oil price higher has finally shown convincing results (e.g.; OPEC+ 3.66 mn barrel output cut since May, Saudi Arabia 1mn barrel self-imposed cut until October, winter season in Northern Hemisphere – demand risks; prolonged Russia-Ukraine conflict) and the danger is that oil price may not slowdown anytime soon – potentially hurting global growth and spark inflation concern though more of a cost-push nature. Oil price could easily exceed USD100 per barrel as a result, how fast and sharp its rise will have a large bearing on global market sentiment. Investors should pay a close attention to this as it could make and break sentiment easily.

All signs are pointing towards the US Fed keeping its policy rate steady at its 6th policy meeting of the year next week (19- 20 September) though it remains open to pencil in another 25 basis points rate hike. The probability of that is low however. With US inflation on the way down, thanks to August numbers that jumped to 3.7% against 3.2% in July, the Fed may want to hold the FFR steady and keep the 25 basis points as a spare, only if needed to. The good news is that consensus is expecting the Fed to signal two rate cuts next year, pushing the FFR to 4.4% by end of 2024 from 5.5% currently. That is equivalent to four (4) 25 basis points rate cut. This should be sufficed to trigger a higher risk taking in equity market thanks to lower discount rate. Above all, it will finally stem and reverse the rise of USD. On that score, we suggest investors to go ‘long’ on equity and regional currencies.

Source: BIMB Securities Research - 17 Sept 2023