WEEKLY MARKET ANALYSIS BY MANOKARAN MOTTAIN
THE benchmark KLCI Index edged lower for the second consecutive week to 1,490.47 points (-7.08 points or -0.47%) due to profit taking within the large cap space.
However, trading activities among the mid and small cap space remains red hot as the average daily value traded rose by a staggering 29.6% over the past week to RM2.64 billion per day, which is 37% higher than its past 100-day average daily trading value of RM1.93 billion.
In the bond market, US bond yields were relatively flat over the past week despite the Federal Reserve Open Market Committee (FOMC) increasing the Federal Funds Rate (FFR) by 25 basis points last week.
The latest data on payroll showed that employment remains robust in the US with non-farm payrolls rising by 517,000 in January 2023 which was well above the 187,000 forecasted by the market.
Weekly jobless claims also came in lower than expected at 183,000. This helped to bring the unemployment rate down to 3.4% which was lower than the 3.6% projected by the market.
The 10-year US Treasury (UST) yields rose by 1 basis point last week to 3.52% from 3.51%. This increased the total yield gains over the past 23 weeks to 48 basis points.
Meanwhile, the UST 2-year yields rose by a higher 8 basis points to 4.29% from last Friday’s close of 4.21%. The yield curve inversion between the UST 2-year and 10-year notes entered into its 30th consecutive week with yield spreads widening to -77 points from -70 basis points last week. The long-term average of the yield spread for both UST is +0.92% or +92 basis points.
Yields for the 10-year MGS bond yields fell by 3 basis points to 3.76% last Friday. The latest result slightly narrowed the yield spreads between both countries’ 10-year bonds to just 24 basis points.
Petroleum Sarawak Berhad will be investing RM2.0 billion to develop a 400 Mega Watt combined cycle gas turbine plant to power the city of Miri. Sarawak Primier Tan Sri Abang Johari Openg said Miri has been identified as the next gas hub in Sarawak after Bintulu, Samalaju am Kuching under the Sarawak gas roadmap which aims to provide state wide access to affordable and reliable and clean natural gas supply.
Malaysia’s Producer Price Index rose by 3.5% year-on-year (y-o-y) in December 2022 against 3.2% y-o-y in November 2022.
The Department of Statistics Malaysia said all sectors posted increases during the month except for the agriculture, forestry and fishing sector which posted a -17.5% decline.
The production of computers, electronics and optical products sector rose by 9.3% followed by the manufacturing sector (+6.1%), the mining sector (+3.7%) and the chemicals & chemical products sector (+3.1%).
The Ringgit fell against the US Dollar following news that the US Federal Reserve hiked the FFR by 25 basis points. It ended the week at RM4.2560 / USD1.00 (+1.5sen) on the back of mild profit taking from foreign investors after three consecutive weeks of gains.
The Ringgit continued to gain ground against all of the other major currencies over the past week which was surprising in light of the 50 basis points hike by the European Central Bank. The Ringgit ended the week against the Singapore Dollar at RM3.2174 / SGD1.00 (-1.4sen), the Japanese Yen at RM3.2430 / JPY100 (-2.0sen), the Euro at RM4.5958 / EUR1.00 (-1.5sen) and the British Pound at RM5.1312 / GBP1.00 (-12.9sen).
The underlying market sentiments remain cautious as the KLCI was only propped up at the end of last Friday’s session due to late buying activities. Nevertheless, there is considerable trading activity in the small and mid-cap stocks throughout the week which I believe are more speculative in nature as the FTSE Bursa Malaysia Small Cap Index only rose by 0.80% over the past week.
The KLCI’s direction will largely be dictated by the upcoming corporate results as well as the re-tabling of Budget 2023 on 24 February 2023. Nevertheless, the underlying strength of the market remains strong given the rising trading volume and value per day and I expect it to re-test the 1,500 points psychological barrier again soon.
The bond markets was muted last week as it digested the result of the FOMC meeting. The US Federal Reserve has indicated while there has been some disinflationary signs, war with inflation is not over yet. It also signaled that it may continue to hike rates by another 25 basis points at its March meeting should inflationary pressures remain entrenched. This scenario may occur as the labour market in the US remains amazingly robust which will invariably drive inflation.
The yield spreads between our local 10-year MGS yields and 10-year US Treasury Bills remains razor thin at 24 basis points, hence I am maintaining my view that there is limited room for the yields of the MGS to drop a lot further from the current levels and could easily reverse back to the 4.00% level if an adverse event occurs.
In the currency market, the impact of the increase in the FFR has already pretty much been factored in by the market as the Ringgit remained relatively steady against the US Dollar.
Going forward, the Ringgit is likely to be relatively range bound for the time being as the market digest upcoming inflationary data to see whether the US Federal Reserve will follow through with its rate hike upcycle at its next meeting in March 2023.
Therefore I will maintain my view that the Ringgit will trade between RM4.20 and RM4.30 against the US Dollar in the coming week. – DagangNews.com
Manokaran Mottain has been an economist with a number of financial institutions and is now managing his own firm, Rising Success Consultancy Sdn Bhd