This Week’s Top Headlines

i) Hike, hike, and hike! The latest US jobs report showed employment and job growth were still strong. Federal Reserve Chairman J. Powell leans toward more aggressive rate hikes.

ii) Bank Negara Malaysia (BNM) holds the Overnight Policy Rate (OPR) steady at 2.75% in its most recent meeting, marking the second instance of doing so. Critics express concern over the negative impacts on the ringgit.

*Due to the substantial number of events that occurred this week, I decided to segregate the newsletter into two parts. PART I was sent to all patrons on Monday (Mar 13). This is PART II of the newsletter.

March 14 - Remember this date!

Depending on the time you read this newsletter, the most recent US inflation data, scheduled for Tuesday, March 14th, may have already been released.

If that is the case, there may be increased market volatility, with the direction dependent on whether the Consumer Price Index (CPI) met expectations.

The prevailing consensus for the overall CPI data is a decrease of 0.4%, bringing it to 6.0% from the prior month.

Meanwhile, core inflation is anticipated to be 5.5%, down from 5.6%.

If the reported figures fall short of expectations, the market may experience a downturn, causing Bitcoin to drop below $20,000 and potentially erasing all the progress it made in January.

Fed chairman says committee is prepared to increase the pace of rate hikes if required

On Wednesday (Mar 8), Federal Reserve chairman J. Powell testified before a hearing on “The Federal Reserve’s Semi-Annual Monetary Policy Report” in Capital Hill, Washington.

His prepared speech took no longer than a few minutes, but it changed what investors had previously thought.

J. Powell cautioned that interest rates are likely to peak higher than previously anticipated, forcing the market, which had long been looking at the Fed to pause soon, to recalibrate and price in the shocking statement.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

From the remarks, the Fed could (and would) increase the pace of tightening should inflation come in hotter than expected.

Stocks fell sharply after Powell’s speech, with the Dow Jones, SNP, and Nasdaq shedding over 1.20% on Wednesday (Mar 8).

Strong jobs growth may push the Fed to be more aggressive

According to the latest unemployment report, job creation in the United States remains robust.

Non-farm payrolls experienced a greater-than-expected increase of 311,000 in February, surpassing the estimated 205,000.

Meanwhile, the unemployment rate climbed to 3.6%, which is higher than the anticipated 3.4%. The report indicated a 0.1 percentage point rise in the labor force participation rate, reaching 62.5%, the highest level since April 2020. Nevertheless, this figure is still lower than the pre-pandemic rate of 63.4%.

The strong jobs report is likely to keep the Fed headstrong when it comes to rate hikes. Traders are currently estimating a slightly higher likelihood of a 50 basis points increase in the Fed's upcoming meeting on March 22nd, which marks a significant increase compared to the prior increment of 25 basis points.

Bank Negara Malaysia holds OPR steady at 2.75%, signaling growth concerns

The Monetary Policy Committee (MPC) of Bank Negara Malaysia (BNM) has chosen to maintain the country's overnight policy rate (OPR) at 2.75% during its most recent meeting on 9th March.

This is the second consecutive time the central bank maintained its benchmark interest rate after four straight hikes last year by a cumulative 100 basis points.

According to BNM's statement, the current OPR is accommodative and beneficial to Malaysia's economic growth. The central bank requires additional time to evaluate the effects of the previous OPR adjustments made in 2022 since monetary policies have a delayed impact on the economy. This is consistent with what was communicated during the previous MPC meeting in January.

However, the pause on OPR hikes have been detrimental to the ringgit. As of February, we have already observed a decline of over 6% in the ringgit's strength.

Critics are expressing concern that BNM’s pause would widen the interest rate differential between Malaysia and the US, which would ultimately drive more demand away from the ringgit and towards the dollar.

With the US continuously hiking interest rates while Malaysia lags behind, the ringgit’s short term prospects are looking grim.

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 13 March 2023 and completed at 2.30 PM the same day. To get early access to our newsletter, be our patron for as little as $1/month!