Market volatility to remain in the near term, partly driven by US fed rate hikes

PETALING JAYA: AmBank Group is expecting market volatility to remain at least in the near term despite an improvement in the intra-day trend.

Its chief economist and head of research Dr Anthony Dass on Tuesday said this would be partly driven by the US Fed rate hike aggressiveness and the potential incoming data that would indicate European Central Bank’s (ECB) ability to end the quantitative easing (QE) by end-2018.

The US Fed rate hike aggressiveness, he said could see a total of three to four hikes this year. 

“Following the unprecedented win by Pakatan Harapan (PH) in the GE14, the markets have reacted with a knee-jerk of sell-off, which is expected to last for a while. Though we subscribe to this we view, we felt the negative knee-jerk reaction may not last long, perhaps could even be as short as a day.

“We found the 5-year credit default swap (CDS), which is used to measure risk aversion, fell by 3.7 points to close at 85.7 on May 14 . At the same time, the ringgit, which started at 3.99 against the US dollar, eventually settled at 3.95 at the end of the day, moving in tandem with regional currencies with the exception of the Philippines peso, Chinese yuan, Indian rupee and Indonesian rupiah which fell for the day.

“Meanwhile, the 10-year MGS, which started around 4.25%, saw some upwards pressure but eventually ended around 4.16%. Though the KLCI saw a net outflow of foreign funds amounting to RM682mil, the local bourse closed higher by 23 points to end the day at 1,850,’’ Dass noted.

On the domestic scene, he added that while confidence was being restored with the strong track record of the 7th prime minister, the five Council
of Elders members, naming of the three senior cabinet ministers as well as the potential release of Datuk Seri Anwar Ibrahim with a full pardon, investors would be looking at the formation of the full cabinet. 

“Although rating agencies like Fitch and Moody’s have reiterated their overall ratings on Malaysia, many others, including them, will be looking for clarity on several points in the PH manifesto.

“On the whole, we are maintaining our projections for 2018 with the full-year GDP at 5.5%, inflation at 2.5% – 2.8%, the KLCI at 1,900 based on an earnings growth of 6.9%, 10-year yields at 4.20%, the ringgit at 3.90-92 versus the US dollar, and the fiscal deficit at -2.8% of GDP. We reiterate our overnight policy rate (OPR) outlook at a 45% chance of Bank Negara raising rates in the second half of this year,’’ he said.

Corporate News , Economy