This Week’s Top Headlines

i) Bitcoin is currently "in limbo" at $28,800 following the latest Fed meeting on Wednesday (May 3). Supports and resistances are currently at $28,000 and $30,000, respectively.

ii) The Federal Reserve approves its tenth consecutive rate hike, bringing the Fed Funds Rate to 5.25%, in line with expectations. Markets turned red after Chairman J. Powell indicated that there is no decision to pause rate hikes yet.

iii) Bank Negara Malaysia (BNM) raises the Overnight Policy Rate (OPR) by 25 basis points in a surprise move, citing "resilient demand" and "persistent" core inflation. Local bank shares and the ringgit treaded higher on Friday’s close.

Scroll down to read the details.

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Bitcoin remains muted despite volatility

The world’s largest cryptocurrency is trading “in limbo” following the most recent Fed meeting. It is currently hovering at $28,884, a decrease of about 5% from its April high of $31,000, but still up over 75% from the start of January.

The market’s lackluster growth this week can be attributed to the Fed’s tenth consecutive rate hike and Chairman J. Powell’s bearish comments during the FOMC meeting.

In the event that Bitcoin experiences a downturn, we can expect to see a rebound at $28,000, while its potential upside will be constrained at $30,000.

Fed raises rates by 25 basis points, signals potential end to rate hikes

The Federal Reserve on Wednesday approved its 10th consecutive interest rate hike, bringing the Fed funds rate to a range of 5%-5.25%, the highest since August 2007.

The 25 bps increase was widely expected by investors and analysts.

During the FOMC meeting, Chairman J. Powell indicated that rate hikes might come to an end, stating that the Fed will be more "data dependent" going forward.

Markets turned lower when Powell said that the path to getting inflation back down to 2% still has "a long way to go," and that the Fed is not considering any rate cuts this year.

Powell also said that the Fed has not made any firm decision on when to pause rate hikes. The committee requires more evidence to determine if the current Fed funds rate is restrictive enough, he added.

Major indices like the S&P 500 fell by 1.90% during the meeting but have since recovered all the losses on Thursday and Friday.

Bitcoin, meanwhile, gained over 4.70% to $29,600 before retracing to $28,800.

What are investors expecting for the next FOMC meeting?

Majority of investors (91.5%) believe that the Federal Reserve will pause and hold the Fed funds rate at 5%-5.25%. This outcome could become a reality if the upcoming inflation data, scheduled for release on May 10 and June 13, falls in line with or below market expectations.

Bank Negara Malaysia surprises markets, raises OPR by 25 bps to 3.0%

In its Monetary Policy Committee (MPC) meeting on Wednesday, Bank Negara Malaysia (BNM) unexpectedly increased the Overnight Policy Rate (OPR) by 25 basis points.

The decision has brought the OPR to the pre-pandemic level of 3.0%. It is the first hike from BNM in 2023 since the central bank paused for two consecutive meetings in Jan and March.

The central bank noted the strong rebound of China’s economy and said that headline inflation has moderated globally but core inflation continues to persist above historical averages.

BNM also said that the global economy continues to be driven by “resilient domestic demand supported by strong labour market conditions,“ citing a need to dampen demand and manage persistent inflation.

The OPR levels affect your spending, saving, and borrowing

The recent rate increase is likely to have a negative impact on borrowers but a positive impact on savers.

This is because it will result in an increase in the interest rate on both new and existing "floating" loans, making borrowing more expensive.

On the other hand, banks will raise their deposit rates, allowing fixed deposit holders to earn better rates of return. Additionally, cash apps such as TnG, Versa, and StashAway are also expected to increase their earnings rate, providing further benefits to savers.

The OPR levels affect the ringgit’s strength

Currencies fluctuate due to supply and demand, which are mainly driven by the difference in interest rates between countries.

BNM’s latest rate hike will narrow the interest rate gap between Malaysia and the US, so we should expect the ringgit to strengthen in the upcoming days or weeks.

Another interesting effect of BNM's recent OPR hike is that banks will report better earnings.

Every 25 basis point hike in the overnight policy rate (OPR) will widen the banking sector's net interest margin (NIM) by five to six basis points, which in turn will lift earnings forecasts by three to four per cent, Hong Leong Investment Bank said.

The research firm has switched its sentiment on Malaysian banks to bullish but said that the market would remain choppy since investors have not shaken off the fear of the banking crisis.

That’s all for this week’s newsletter!

Disclaimer: I am not a financial advisor. This newsletter is based on my own analysis and research. Do not take any of it as financial advice.

*This newsletter was written at 10.30 AM on 7th May 2023 and completed at 3.30 PM the same day. To get early access to our newsletter, be our patron for as little as $1/month!