• DJIA in correction mode

• A full scale Israel invasion plan is a concern.

• All eyes on US FOMC policy decision this Wednesday

• OPR is expected to remain status quo this Thursday

The sharp DJIA correction last Friday which declined by over 300 points will inflict pain on global equity market on Monday particularly with a nervous week ahead amid the escalating conflict in the Middle East (ME). Though the impact of the conflict in the ME is quite contained on the back of a retreat in global oil prices (current Brent crude: USD90.48 per barrel) and VIX index (21.27) but the Israel plan for a full invasion of the Gaza strip may spark a retaliation by neighboring states like Iran which issued a strong worded statement against Israel and US. A full blown conflict may push investors to remain overweight on safe investment, ditching risky investment like equity. On that score, USD and gold may prevail in our view. Dollar Index remained elevated last Friday (106.559) and could test a one-year high of 112.93. This may hurt regional currencies including Ringgit though the currency retreated slightly at the closing last Friday (RM4.7775 per Dollar). This is just a tad lower than a year low of RM4.7937 (last Monday; 23rd October) and historical low of RM4.88 per Dollar (1998). Gold price, on the other hand, remained on the rise after breaching the psychological level of USD2,000 per ounce tray following a USD2,006 per ounce tray closing last Friday. This is a cool 7% rise against a month ago. The next psychological hurdle will be its 1-year high of USD2,050 per ounce tray.

In sum, the uncertain external development could hurt riskier investment like equity particularly when US FOMC is due to release its latest policy decision on Wednesday. All eyes will be on the policy statement particularly on policy direction of which the Fed could signal that it may keep the FFR elevated for an extended period given the strong US 2Q23 GDP growth. Of note, US’s 2Q23 GDP beaten the street estimates after it grew at a pace of 2.4% against the street’s estimation of 2.0%. Consumer spending powered the US economic growth in 2Q despite the elevated level of FFR (5.25%) which has been raised by 500 bps since last year. This could be a precursor for US FOMC to keep the FFR high for longer and hence, our reiteration that the US Federal Reserve may begin its FFR normalization only in 3Q24. Nonetheless, we think it’s a 50:50 chance for US FOMC to increase the FFR this Wednesday. BNM is also due to release its 6th policy decision of the year on Thursday though we opine a status quo. That said, OPR is expected to remain steady at 3.0%. More importantly, Malaysia will be releasing its 3Q23 GDP numbers on 17th November. All eyes will be on Malaysia growth potential especially on manufacturing sector given the marked moderation in global demand for E&E goods.

Source: BIMB Securities Research - 30 Oct 2023