UK faces exit bill from European Commission
Fundamental outlook
US new home sales improved while the labour market narrowed as job claims rose. UK continued to exhibit firm economic growth despite the impending Brexit. The terrorism act committed in London recently caused five deaths, placing Britain on high alert.
US current account deficits narrowed to US$ 112 billion in January, lesser than forecast, compared with US$ 118 billion recorded in the previous month. Existing home sales grew 5.48 million in February and the lowest in the past three-month record. Weekly crude inventories expanded five million barrels last week which was higher than expectations.
US new home sales rose back to a four-month high at 592,000 amid steady growth in housing demand. Jobless claims unexpectedly surged to 258,000 but labour market remained strong. Order for core durable goods, excluding transport equipment, rose 0.4 per cent in February, on par with core the previous month’s data.
Current account surplus in the eurozone rose 24.1 billion euros in January, the lowest in six months, compared with 30.8 billion euros recorded in the previous month.
UK consumer prices jumped 2.3 percentunexpectedlyinFebruary from a year ago, the best recorded in the last 3 years. Producer prices on a monthly basis declined 0.4 per cent, indicating a slowdown in production.
British net borrowing in the public sector grew 1.1 billion pounds in February, missing forecast. Retail sales expanded 1.4 per cent in February, the best recorded in the last four months.
Last week, London suffered from a terrorist attack near the House of Parliament, resulting in five deaths and 50 casualties. The British government went on high alert while the ISIL terrorist group has claimed responsibility to the attack.
European Commi s sion reiterated that there would be an ‘exit bill’ for the UK before it leaves the European Union (EU). This is controversial to UK’s government that has refused the bill multiple times. The bill, which has been calculated by EU officials, includes the UK’s share of debts, pensions and unpaid bills. It is estimated to be about 60 billion euros. Technical forecast
US dollar/Japanese yen traded in bearish trend last week but made a small rebound on Friday. The market still remained supported at 110.50 region while it could consolidate at 112.50 level this week. We foresee the trend would move in mixed sentiments and it might attempt a short-cover for a while.
Euro/US dollar resisted at 1.082 region as the rising trend slowed down. This week, we reckoned the trend would be resisted at 1.085 in case the market continues to rise. Falling back could result in a 1.0650 support if the dollar rebounds. Market investors should keep a close watch of US’ tax-reform policy that could lead to new dollar trend.
British pound/US dollar traded in a gradual uptrend last week, indicating that it was barely affected by the terrorist attack in London. This week, we predict the trend would range from 1.235 to 1.265 region without a clear clue on the market’s direction. Investors are still not leading the market direction as the Brexit execution is about to begin.
Disclaimer: This article was written for general information only. No liability by the writer or newspapers.
Dar Wong is a registered fund manager in Singapore with 28 years of trading experience in global Derivatives & FX markets. He can be reached at dar@ pwforex.com.
In a recent report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) pointed out that the recently released 2016 Bank Negara Malaysia (BNM) annual report kicked off with a relatively more optimistic outlook to the previous year.
However, it noted that the report retained a cautious tone, warning of downside risks arising from global events, particularly among the major economies.
Furthermore, lingering domestic risks (higher cost of living, weak sentiments, among others) might also weigh against Malaysia’s recovery, it added.
Nevertheless, the research team opined, “The prospect of Malaysia’s economic growth, barring unforeseen shocks, appears to have improved.
“This may compel us to believe that it could be a start of a gradual shift of monetary policy bias to slightly tightening from the current neutral standing.”
That shift, however, might only happen provided the perception of political risk subsides along with the reversion of the ringgit towards its fair value, it cautioned.
“For now, we reiterate our viewpoint that BNM would retain the overnight policy rate (OPR) at three per cent at least in the the first half of 2017 (1H17) in the absence of any deterioration to growth amid cost-push inflationary uptrend.
“The possibility of a highly- anticipated General Election in the second half of the year would also add to the likelihood that rates would remain unchanged. That being said, we believe the OPR is both accommodative of growth while sufficient in keeping inflation in check,” it commented.
Meanwhile, the research arm of Affin Hwang Investment Bank Bhd (Affin Hwang) believed that Malaysia’s economic fundamentals, barring any unforeseen external circumstances, would continue to remain sound, supported by improving economic outlook, sustainable current account surpluses and healthy foreign exchange reserves.
However, it pointed out that there is some upside risk to inflation.
It noted, “BNM raised its inflation target to three to four per cent in 2017, higher than our forecast of 2.7 per cent (2.1 per cent in 2016). BNM attributed higher inflationary pressure to the prospect of higher global commodity and energy prices, and the impact of the depreciation of the ringgit exchange rate.”
Aside from that, Affin Hwang said, BNM’s monetary policy would continue to remain supportive of economic growth.
“According to BNM, monetary policy in 2017 will continue to ensure that its stance is consistent with sustaining a steady growth path amid price stability.
“We concur that the policy environment is expected to remain challenging, due to higher inflation, volatile capital flows and lingering uncertainties in the global economic and financial environment,” it commented.
On the external front, the research team believed that the recovering global trade could drive Malaysia’s growth.
“In the latest publication, the International Monetary Fund (IMF) projected that the world trade volume will grow by 3.8 per cent in 2017, against 1.9 per cent last year.
“BNM is projecting a strong growth of net exports by 5.3 per cent in 2017 as against a contraction of 1.8 per cent in 2016, with strong exports