• US’s central bank recent policy statement to lift sentiment

• US central bank to make historic cut in FFR next year

• US’s bellwether indexes are close to historical best

• Foreign investors resumed buying interest on Bursa Malaysia post US’s policy decision

It was an early Christmas gift for the world thanks to US’s central bank recent policy statement that caused an early celebration for all. First of all, US FOMC held steady the FFR at its final policy meeting of the year - which means that the FFR has been kept steady post July 2023 where it was adjusted by 25 bps then to 5.50%. Though there were many situations where the FFR was speculated and therefore, slated for another increase to reach of 5.75% (terminal rate), but the US FOMC kept its cool and displayed admirable patience in engaging the ‘data dependent strategy’. On that score, the October CPI numbers which moderated convincingly to 3.2% from 3.7% in September was the key enabler that led the US FOMC to finally settled on tightening the policy rate. The November CPI numbers that slipped to 3.1% were the last piece of jigsaw puzzle needed though the central bank brushed aside the unexpected drop in US’s unemployment rate. To recap, US’s November labour market emerged stronger-than-expected following unemployment rate that declined to 3.7% on the back of US’s JOLTS that moderated further in October. On this score, the ‘policy lags’ theory on inflation was in full effect amid US’s FFR that was first cut in sizeable quantum starting in May 2022 (note: 50 bps). Fast forward, it is exactly 5-6 quarters where an impact was shown on inflation following a sharp adjustment on policy rate. To recap, US’s central bank tightened by the FFR the sharpest and fastest in history post COVID-19 by a total of 525 bps to 5.50%.

Having said that, when will the US FOMC cut the FFR? There has been many speculations overdrive which states that the FFR could be cut as early as March 2024 and by as much as 150 bps. We beg to differ, however. We are of the opinion that the FFR could be cut as early as July (therefore, 3Q inline with US’s FOMC guidance) and as high as 100 bps (note: a tad higher than FOMC expectation of 75 bps). In any case, the latest development is expected to shape the window dressing activity in ASEAN. On that score, the buying interest on Bursa Malaysia surged convincingly post announcement by US FOMC. Foreign investors net buy jumped to >RM300mn on Thursday and Friday (totaled), a contrast compared to a combined of -RM171mn from Monday to Wednesday. As the largest market uncertainty has been removed with the recent announcement by US central bank, we are of the opinion that this year’s window dressing activity will be a contrast compared to last year. We expect a hive of activity until year end and to spill into January thanks to the feel-good-factor ahead of the incoming new Yang Di Pertuan Agong (YDPA). Note that Malaysia will receive the new YDPA on 31st January, our 17th, which will herald a new dawn for Malaysia amid the new Agong that is expected to re-shape and re-shine Malaysia on the global stage.

Source: BIMB Securities Research - 18 Dec 2023