• We foresee no significant risk ahead that could dampen sentiment

• Ringgit started to rebound

• Brent crude on the way down

• A lower-than-even chance for US to increase the FFR in December policy meeting

Jerome Powell gave the global equity market something to cheer amid the US FOMC decision to keep the FFR steady at its second final meeting of the year last week. With that, the FFR has been kept unchanged at 5.50% for the second consecutive time this year after being adjusted in July. Still, the current US FFR is more than 500bps higher than a year ago. Courtesy of a steady policy rate by US FOMC, US’s 10-Year Treasury yield pulled back significantly to 4.5724%, a cool 0.2622% drop against the week before of 4.8346%. Malaysia’s 10-Year MGS also followed in tow amid the rate that also eased to 3.964% versus a week before of 4.108%. This gave the global equity market something to cheer amid DJIA and FBMKLCI that over 1,600 and 8 points on week-on-week basis. To recap, the US FOMC decided to keep the FFR steady at its 7th policy meeting last week, not surprising, but more importantly it omitted the word ‘higher for longer’ in the policy statement. This indicates that the US FOMC may not keep the rate ‘too high for too long’ and hence, the expectation that the US FOMC may start normalizing the rate as early as in 2H24. We predict it to take place as early as July 2024, or even earlier if US inflation and unemployment improve convincingly. Having said that, US’s job growth is showing signs of slowing down amid the US’s non-farm payroll that added a mere 150k jobs in October. This pounded the US’s unemployment rate which slipped further to 3.9% for the month against September’s of 3.8%. This is close to US’s Congressional Budget Office (CBO) expectation of 4.1% (note: end 2023). With two more months to go, this is expected to be within reach. US’s job opening is also showing a healthy trend amid September’s numbers that dropped to 9.55mn against August’s of 9.61mn. This is still however higher than the July’s numbers of 8.8mn. In any case, US’s FOMC will be watching closely the US’s October CPI numbers that is due for release on 14th of November. Should the numbers drop further against September’s of 3.7%, market may turn jubilant, sparking a rally.

All is well for now amid Brent crude that slipped further to end the week at USD84.89 per barrel, significantly lower compared to year high of USD96.55 per barrel (27th September), suggesting that the impact of brewing conflict in the Middle East (ME) is quite contained for now. Ringgit also recovered to finish the week at RM4.7292 per Dollar versus a week ago of RM4.7775 per Dollar. With many of the global equity market overhangs have been removed particularly the uncertainty over US policy decision, conflict in the ME, to mention a few, we expect sentiment to recover further amid the market that has started to look forward to the impending interest rate cut in US in 3Q24. This is expected to be the biggest impetus in 4Q23 and well into 2024.

Source: BIMB Securities Research - 6 Nov 2023