United States
The US Federal Reserve is on track to hike interest rates (Amp says Dec but I think a hike in Sept is still on the cards & cannot be disregarded), but September is looking less likely thanks to very weak June quarter wages growth. A further improvement in growth and confidence that inflation will rise is needed. On the inflation front, falling commodity prices and a very weak rise in June quarter employment costs which saw annual growth fall back to just 2% suggests that a September hike is now looking less likely with the timing being pushed back to December.
The US June quarter earnings reporting season continues to better expectations. We are now 70% done and 74% of companies have beat on earnings. The focus will be on the July institute for supply management manufacturing conditions purchasing managers’ index (Monday) which is expected to remain solid at 53.5 and July jobs data (Friday) which is likely to show continued strong jobs growth of 220,000 but unemployment remaining unchanged at 5.3%.
Eurozone
Eurozone economic confidence rose in July to a four-year high, despite the noise around Greece, and is running around levels consistent with decent growth. On top of this bank lending is continuing to improve and the Spanish economy grew 1% in the June quarter with annual growth at its fastest since before the global financial crisis. Clearly Spain is not a Greece! Meanwhile, although Eurozone core inflation rose in July to 1% year-on-year it remains well below target and is likely to fall as lower commodity prices feed through, so European Central Bank quantitative easing is set to continue.
Asia
Chinese shares had a bad week with their biggest one-day fall in eight years, largely in response to a rumour that the China Securities Finance Corporation was no longer committed to stabilising the share market. While this was subsequently denied volatility remained high. After very sharp share market falls like the 1987 share crash or through the technology wrecks and global financial crisis, it’s quite normal to see a volatile period of base building around the bottom. So the same is likely to apply in relation to China. That said further policy stimulus is still needed in China. Japanese economic data was mixed with household spending down and unemployment up, but against this the jobs-to-applicants ratio held at its highest since 1992, industrial production rose more than expected in June with an improvement in the July purchasing managers’ index pointing to further gains and core inflation at least rose to 0.6% year-on-year in June. The Bank of Japan (Friday) is unlikely to change monetary policy, although more quantitative easing remains on the cards at some point.
On the Malaysian front, we are battered in several fronts; stock market, domestic spending and currency but they all have a common theme - we are suffering from a
crisis of confidence.
[1] Sell-off in the stock market intensified amid weakening growth prospects continuing to weigh down on investor sentiment. Even EPF is selling since Monday of the week.
At the same time, PNB had sold 25,000,000 shares of Maybank. Citi Research, a unit of Citigroup Global Markets Inc, yesterday projected Malaysia’s economic expansion may slow to 4% in the second quarter ended June 30 from the 5.6% achieved in the first quarter.
BNM will release this data 13th Aug 2015 (Release of 2nd Quarter 2015 GDP). If data is worse than expected, more market sell-off may occur.
[2] Domestic spending confidence is like tumbling monkeys - almost to the same level as it did during the financial crisis. With further weakening of myr (take oil as example, global oil has shed half its price but prices at the pump remains relatively same a year ago) and consumers still reeling from post GST effects it is very certain confidence level will remain low for a while.
[3] Currency woes can be summed up as = commodities bear market (palm oil & oil) + low IR + the super moron. I will talk about each.
- The two commodities are the country’s major exports after electrical and electronic products. Oil is now below $50 a barrel while crude palm oil is at near RM2,000 a tonne levels. Oil is expected to remain low (Saudis are in deep shit with their war against US shale frackers losing ground) while most analyst expect CPO prices to average between RM2,200 to RM2,400 a tonne this year amidst not so strong demand from India and China.
- Low interest rate. It will remain so (unless the currency gets far worse than it is now >4.5). I have said this many times.
The international reserves of Bank Negara Malaysia amounted to RM379.4 billion (equivalent to USD100.5 billion) as at 15 July 2015.
The international reserves of Bank Negara Malaysia amounted to RM364.7 billion (equivalent to USD96.7 billion) as at 31 July 2015.
- Super moron. Najib Razak himself (also the Finance Minister) is a crisis. If a prime minister can pocket RM2.62 billion and walks away a free man running the country, what is there to stop him from becoming the ultimate major shareholders of all the 940 public listed companies in the stock exchange? Meanwhile he is also surrounded by equal bigots:
"Nazri (Tourism Minister) stands by belief that weak ringgit is good for tourism."
Kepala otak hang -> nak jadi Uganda, Madagascar, Siera Leone, Zimbabwe ke?
“God willing, the ringgit slide will stabilise,” said Husni (Second Finance Minister). “We will get a better picture when the US Federal Reserve decides on the interest rate.
Kepala otak hang -> when the US decides the only direction is going to be up.
"Wahid (Minister in PMO): Ringgit slide not as bad as during Asian financial crisis."
Kepala otak hang -> the Ringgit is now 3.943 per dollar, its weakest since Sept. 2, 1998, the day before the government pegged it at 3.8000 per dollar to put a floor under the currency during the Asian financial crisis.
 |
| Aduhai..in 3 days 3.855 -> 3.943 |
What can you do?
Before you ask me. No, we are not even close to Greece (debt default crisis) is different than that of crisis of confidence. Please don't queue up to withdraw all your savings or EPF like there's going to be a RM60 max withdrawal per day.
Use your Ringgit and invest in Asia Pacific ex Japan funds - call it a form of hedging because the Malaysian Ringgit lost 2.8% to Singapore, 3.8% to Thailand, 4.9% to Indonesia. Within the same 3-months period, the ringgit also losses 7.6% to Chinese Renminbi, 4.1% to Japanese Yen, 2% to Korean Won, and even a staggering 7.9% to Pakistan Rupee and 8% to Indian Rupee.
I would avoid putting more money in the Malaysian market. As I have mentioned a month earlier in my July Portfolio Update, everything in Malaysia is already at HOLD.
Hold some USD/SGD/GBP at least for the short term (6 months). Don't bother about Euro, Yen or AUD (they are expected to remain relatively weak). Don't even bother about Gold (a stronger dollar & suppressed oil will mean this asset class will remain weak). I prefer SGD as historically it has appreciated against MYR. There is a risk that the Ringgit gets pegged to USD.
Join the calls (blogs, Bersih 4, facebook and whatever) to demand Super Moron to step down. I can safely say that both the currency and stock market will have a knee-jerk 5-10% recovery or at least our endless bird droppings will stop further.
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