This Week’s Top Headlines

i) Bitcoin recovers to $29,000 as shares of First Republic Bank tumble, reigniting the narrative of the world’s largest cryptocurrency as a “safe haven” asset.

ii) The Federal Reserve is expected to go with a final 25 basis point rate hike in May before pausing for the rest of the year, according to a Reuters poll of 105 economists.

iii) Bank Negara Malaysia (BNM) will likely hold the Overnight Policy Rate (OPR) steady at 2.75% during its May meeting. Research houses believe that the current OPR is accommodative for the nation’s growth and inflation outlook.

iv) An economist from Sunway University is urging the government to raise the retirement age from 62 to 65 to resolve the alarmingly low EPF savings of citizens.

Scroll down to read the details.

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Bitcoin regains buying interest as another US bank teeters on the brink of collapse

The world’s largest cryptocurrency has reclaimed $29,000 after a week of profit-taking from investors, which saw it fall to a low of $27,100.

The buying pressure suggests that Bitcoin could see supports along the $27,500 mark, with stronger supports at $25,000 and $20,000.

I am expecting Bitcoin to consolidate within its current price range in the short term, at least until the upcoming FOMC meeting on Wednesday (May 3), as Bitcoin has shown signs of weakness above $30,000.

A breakout may potentially indicate the direction of Bitcoin’s upcoming trend.

First Republic Bank shares fell by 65% in 3 days after the bank reported a steep drop in deposits that worsened concerns about the stability of the US banking industry.

Founded in 1985 as a commercial bank, the California lender accumulated $176 billion in deposits during Q4 of 2022.

On Monday, the bank revealed that it had lost more than $100 billion in deposits (or 40% of the total) during the first quarter.

Shares of First Republic Bank were already in the red before this announcement, falling by 89% during the banking crisis in March, when 3 small to mid tier US banks collapsed in less than two weeks.

First Republic tumbled by another 65% following the latest reveal and has lost more than 95% of its value since early March.

Fears of the contagion spreading to other US banks pushed investors towards safe havens like gold and Bitcoin.

The Fed to deliver 25 bps hike in May and pause for the rest of the year: Reuters poll

The US Federal Reserve is expected to go with a final 25-basis-point hike on Wednesday (May 3) before pausing for the rest of the year, according to a Reuters poll of 105 economists.

This decision will bring the benchmark rate to a range of 5.00-5.25%, in line with market pricing.

Equity markets and Bitcoin should therefore see no negative reaction if the Fed follows expectations.

The poll also showed that a mild recession this year is likely.

What’s more important is the terminal rate, or the level in which the Federal Reserve will start to pivot or reduce interest rates.

The banking crisis in March has undoubtedly raised concerns for the Fed that rates were raised too high, too quickly.

The market is currently pricing in a 25 basis-point cut by the end of 2023, but this is looking less likely as inflation is still running well over twice the Fed’s 2% target.

We’ll have to observe Chairman Jerome Powell’s tone during the FOMC meeting on Wednesday, as it will determine the sustainability of Bitcoin’s rally.

Should Powell indicate that rates are likely to go higher than 5.25% without cuts for the rest of the year, then we will see equities and Bitcoin take a tumble.

BNM will hold the OPR steady in May: Bank Islam Malaysia

Multiple research houses are expecting Bank Negara Malaysia (BNM) to maintain the Overnight Policy Rate at 2.75% in its next meeting on Wednesday (May 3).

This would be the third consecutive pause from BNM after four straight 25 basis point hikes last year.

Bank Islam Malaysia believes that the current OPR is accommodative for moderate growth and the inflation outlook.

The research house justified this prediction as the headline inflation has shown signs of stabilization and said that the central bank had to assess the impact of the previous OPR hikes.

RHB Investment Bank also shared a similar view, citing concerns of slower GDP growth amid a challenging environment.

As for the ringgit, analysts are expecting the local note to see some volatility in the upcoming week.

This is due to the uncertainties from the US Fed’s FOMC meeting and BNM’s monetary policy meeting, both scheduled for May 3.

The ringgit has lost momentum against the US dollar in the past two weeks, falling by 1.50% from RM4.393 to RM4.457.

Increase EPF full withdrawal age from 55 to 60: Economist

Dr. Yeah Kim Leng, an economics professor at Sunway University, says that the Employees Provident Fund (EPF) should increase the full withdrawal age from 55 to 60.

The other option is to raise the official retirement age from 62 to 65, as people are living longer these days.

He is also urging workplaces to consider "re-employing" senior citizens to give them a source of income apart from EPF.

These measures, according to Dr. Yeah, would ensure that members have enough funds for retirement.

The state of EPF savings for Malaysians is alarming.

The four withdrawals approved by the government during the pandemic have severely depleted members’ retirement savings.

As of December last year, Anwar said that only 19% of EPF members had reached the basic savings of RM240,000 to retire by 55.

More than half (56%) of members who are 1 year away from retirement have less than RM50,000 in their EPF accounts.

Before raising the retirement age (which will undoubtedly anger citizens), I believe that the government should explore other solutions to encourage members to save for retirement.

These include:

- Improve retirement planning resources and ease of access.

- Increase the mandatory contribution from employers.

- Creating a matching contribution scheme.

- Teaching financial literacy at a young age.

- Raise awareness on the retirement crisis.

- Provide targeted financial assistance.

- Provide semi-retirement options.

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 30th April 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!