This article first appeared in The Edge Malaysia Weekly on December 12, 2022 - December 18, 2022
The key focus this week is the US Federal Reserve’s interest rate decision early Thursday and the November inflation rate of the world’s largest economy.
The US Federal Open Market Committee (FOMC) is widely expected to raise the Fed funds rate by 50 basis points (bps) at its final meeting for the year, marking a shift from the the 75bps hikes at each of its last four meetings.
“We are more confident about a downshift in rate hike magnitude to 50bps, but less certain of the terminal rate. The focus will be on FOMC chair Jerome Powell’s and the dot plot’s guidance on the new indicative range for the terminal rate,” UOB Global Economics & Markets Research said in an outlook report last Friday. The terminal rate is the level at which the Fed is expected to stop raising rates.
Apart from the Fed, there will be interest in the monetary policy decisions of the Bank of England (BoE) and the European Central Bank (ECB), both on Thursday night (Malaysian time). The Philippines’ central bank also has one on the same day. A Bloomberg poll sees each of them raising interest rates by 50bps.
“We keep our view of a 50bps hike in December, but we think the BoE still has a little way to go, given that the Treasury decided to delay much of its fiscal consolidation, which means fiscal policy will do little to fight inflation. [As for the ECB], we believe [it] is mindful of overtightening risks. We expect the ECB to hike by 50bps at this meeting, followed by 25bps in February before pausing,” UOB opined.
Meanwhile, China’s central bank is seen keeping the one-year medium-term lending facility rate at 2.75% on Thursday.
Investors will be keeping a close watch on the US’ November inflation — as indicated by the Consumer Price Index (CPI), out on Dec 13 — to get a sense of how much the Fed’s aggressive rate hikes this year have helped cool red-hot inflation. The US central bank has increased rates six times this year for a total of 375bps, lifting the target range of the Fed funds rate to between 3.75% and 4% last month, its highest since January 2008.
Although the US’ annual inflation rate slowed to 7.7% in October from 8.2% in September, it remains high. Core inflation, which excludes volatile energy and food prices, grew at an annual rate of 6.3% in October compared with 6.6% the previous month.
At home, there will likely continue to be some buzz around Prime Minister Datuk Seri Anwar Ibrahim’s line-up of 27 deputy ministers, which he announced last Friday. Among others, he named Ahmad Maslan and Steven Sim as deputy finance ministers, Liew Chin Tong as deputy international trade and industry minister and Ramkarpal Singh as deputy law minister.
On Monday, the Department of Statistics Malaysia (DOSM) will release the October industrial production data as well as manufacturing statistics. Monday is a public holiday in Selangor to mark the birthday of Sultan Sharafuddin Idris Shah, which fell on the day before.
Over at the Kuala Lumpur High Court, there is the continuation of former premier Datuk Seri Najib Razak’s 1Malaysia Development Bhd-Tanore trial from Monday to Thursday, with former AmBank relationship manager Joanna Yu still taking the stand. Najib is on trial on four counts of abuse of power and 21 counts of money laundering involving RM2.28 billion of 1MDB funds.
In China, among the macroeconomic data released this week are November new home prices, industrial production, retail sales, surveyed jobless rate and property investment — all on Thursday.
On the same day in the US, there will be advanced retail sales, industrial production, business inventories and initial jobless claims data.
There will be preliminary releases for December private sector Purchasing Managers’ Index surveys in the US, the eurozone, the UK and Japan this week, which will provide closing snapshots of business conditions for this year.
New Zealand will announce its third-quarter (3Q) gross domestic product numbers on Thursday. In 2Q, the country managed to avoid a technical recession after growing by a more-than-expected 1.7% from the previous quarter, following a 0.2% decline in 1Q, helped by the easing of its
Covid-19 measures.
In Singapore, the Ministry of Manpower will release its final labour market report for 3Q on Wednesday. UOB estimates that the overall unemployment rate is likely to stay at 2%, while the resident unemployment rate is seen staying pat at 2.9%.
There is November trade data coming out of Indonesia (Dec 13) and Japan (Dec 15), while the Philippines will release its October numbers on Dec 13. Meanwhile, markets in Thailand will be closed on Monday for the Constitution Day holiday.
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