This article first appeared in The Edge Malaysia Weekly on March 20, 2023 - March 26, 2023

The key focus for investors this week is whether the US Federal Reserve (Fed) will continue with its interest rate hike cycle, with a decision expected early Thursday morning. At home, the Muslim fasting month of Ramadan is expected to begin this week.

A Bloomberg poll of 85 economists as at March 17 shows that the majority (69) expect a 25-basis-point (bps) hike in the US, which would bring the federal funds target rate to a range of 4.75%-5%, from 4.5%-4.75% now. Eight economists expect the Fed to stay pat on the rate, while seven expect a 50bps hike and just one anticipates a 25bps cut.

UOB Global Economics and Markets Research is projecting a 25bps hike despite recent banking developments in the US, where the collapse of Silicon Valley Bank and two other smaller banks sparked fears of contagion in the financial sector.

“The latest February US inflation and employment reports reaffirm our view that the Fed is not done with tightening yet, given continued wage growth and the price developments seen in housing, food and service costs,” it says in a March 17 outlook report.

“Admittedly, the recent US banking sector developments have raised concerns as there may be contagion risks surfacing elsewhere, complicating the Fed’s inflation fight as price concerns are now swirling in a pot of financial market uncertainty. Our view remains that the US regional bank’s collapse is viewed more likely as an idiosyncratic development and unlikely to have a systemic impact on the US financial sector, so it is reasonable to expect the Fed to continue to stay focused on fighting inflation and push forward with its rate hike cycle,” the research house says.

According to Moody’s Investors Service, unless financial stability risks heighten even further over this week, it expects the Fed to raise the federal funds rate by 25bps while also communicating that a broader tightening of bank lending conditions will factor into decisions as to how high the rate should go to bring down inflation.

“But if banking stress intensifies, the Fed may well pause rate hikes to assess the situation, and the Fed and other central banks could convene emergency meetings to provide guidance and stem potential panic,” it says in a March 15 report.

Central banks in the Philippines and the UK also have monetary policy decisions on Thursday. Each is seen raising its respective policy rate by 25bps.

In Malaysia, the key data that will be watched will be the February inflation rate, as measured by the Consumer Price Index (CPI), which will be released on Friday. In January, the CPI eased to 3.7% from 3.8% in December 2022, representing the slowest increase recorded since October 2022.

Bank Negara Malaysia will release its latest foreign reserves data as at March 15 on Wednesday. The international reserves amounted to US$114.3 billion (RM512.69 billion) as at Feb 28.

There will also be news developments following the government’s strategic investment arm Khazanah Nasional Bhd’s annual review on Tuesday.

On the corporate front, Sancy Bhd, in which its chairman and former Sapura group CEO Tan Sri Shahril Shamsuddin and Sapura Capital Sdn Bhd own a 20.25% stake, will make its trading debut on the LEAP Market of Bursa Malaysia on Wednesday.

Over in the courts, there is the continued hearing of Lim Guan Eng’s undersea tunnel trial on Thursday. On March 17, the Sessions Court dismissed a preliminary objection by the prosecution over the former Penang chief minister’s application to obtain a forensic report over WhatsApp exchanges between businessman Datuk Seri G Gnanaraja and Consortium Zenith Construction Sdn Bhd director Datuk Zarul Ahmad Mohd Zulkifli and the complaint made in the Shah Alam court. The court then set March 23 to hear the merits of the application.

On Monday, there will be interest in whether there will be any change in China’s one-year and five-year loan prime rate (LPR). A Bloomberg survey expects the rates to stay unchanged at 3.65% and 4.3%, respectively.

“The People’s Bank of China kept its one-year medium-term lending facility rate at 2.75% in March and net injected RMB281 billion (RM183 billion). This likely implies no change to the one-year LPR at the rate setting on Monday. More important to watch will be the five-year LPR as a reduction to the rate will signal strong government support of the real estate sector. Having said that, there could still be targeted support to certain sectors, while a further cut to banks’ reserve requirement ratio remains a possibility,” UOB says.

Trade data will be out in Thailand (March 23), South Korea (March 21) and New Zealand (March 21).

The US will put out data on durable goods orders (March 24) as well as February new home sales (March 24) and existing home sales (March 21).

Markets in Japan will close on Tuesday for the Vernal Equinox Day holiday, while those in Indonesia will close on Wednesday and Thursday in observation of the Saka New Year. Europe will begin daylight savings on March 26.

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