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This article first appeared in The Edge Malaysia Weekly on January 27, 2020 - February 2, 2020

Given that this is a quiet week at home because of the Chinese New Year period, all eyes will be on whether the US Federal Reserve moves to change the benchmark interest rate on Thursday, when its policy arm, the Federal Open Market Committee (FOMC), holds its first meeting of the year.

A Bloomberg poll of 64 economists sees the FOMC keeping the benchmark funds rate between 1.5% and 1.75%. At its last meeting in December last year, the FOMC signalled that rates would hold steady at the current range in 2020. Last year, the Fed cut rates thrice, by 25 basis points each time, to boost the US economy because the US-China trade war and a global slowdown were weighing it down.

The president of the Philadelphia Federal Reserve Bank, Patrick Harker — who is also one of the policymakers — said in a speech two weeks ago that he believes monetary policy is now in “a good place” and that he does not think the rate needs to move in either direction anytime soon, the Wall Street Journal reported.

“We too expect the Fed to stay on pause in January as it has signalled the current policy stance as appropriate and its intention to put policy on pause. We had projected another 25bps ‘insurance’ rate cut in March but that probability has receded with the signing of the US-China Phase One trade deal mid-January. That said, trade policy-related risks remain (US-EU trade) as well as emerging threats (Wuhan coronavirus),” UOB Global Economics & Markets Research said in an outlook report last Thursday.

The Fed’s decision comes about a week after Bank Negara Malaysia unexpectedly cut the Overnight Policy Rate, joining other emerging markets such as Turkey and South Africa in cutting benchmark rates this year.

Bank Negara cut the OPR by 25bps to 2.75% last Thursday, in a pre-emptive measure to secure the country’s improving economic growth trajectory amid price stability. On Jan 16, Turkey cut interest rates by 75bps to 11.25% — after four cuts last year — while South Africa cut its main rate by 25bps to 6.25%.

The US will also release an advanced estimate of economic growth for the final quarter of 2019 on Jan 30. All eyes will also be on Brexit, with the UK on track to officially leave the European Union (EU) on Jan 31 — more than 3½ years after its people voted for the divorce in a referendum in June 2016.

The Withdrawal Agreement Bill was passed by parliament last week and will become law when it receives the royal assent. The EU’s top officials are expected to sign the agreement while members of the EU parliament will vote on it sometime this week.

The Bank of England has a monetary policy decision on Jan 30 and the expectation is that the policy rate will stay pat at 0.75%. Back in Malaysia, Monday will be a public holiday because of Chinese New Year while Saturday is Federal Territory Day. Singapore markets will close on Monday as well.

On Thursday, the Department of Statistics will release the latest Producer Price Index and on Friday, Bank Negara will release a detailed disclosure of its international reserves as at end-December, in addition to the monthly banking statistics for December.

Over in China, markets will reopen on Friday after the holidays, while Hong Kong markets will resume trading on Wednesday. South Korea’s will resume Tuesday.

On Friday, China will put out the Markit/Caixin Purchasing Managers’ Index (PMI) for manufacturing activity. A Bloomberg survey sees the index coming in at 50.1 after last month’s 50.2 reading. (A PMI reading above 50 indicates expansion while that below 50 signals contraction.)

Vietnam and South Korea will release January trade data on Wednesday and Saturday respectively, while Hong Kong and Thailand will come out with December 2019 trade data on Thursday and Friday respectively.

US President Donald Trump’s impeachment trial will continue from Jan 27 to 31.

Meanwhile, the US will see a slew of key data released this week. On Jan 27, it relates to new home sales data and preliminary data for durable goods orders for December. The following day will see the release of the US Conference Board’s index of consumer confidence for January. The index fell slightly to 126.5 last month, but only because the figure for November was revised upward. Economists expect the index to move up to 128.1 this month.

Other US data includes MBA mortgage applications, advanced goods trade balance for December, wholesale inventories, retail inventories and pending home sales — all on Jan 29.

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