Share Analysis

Good evening everyone, it's time for the late trading review. Let's first focus on the international perspective.

Nomi Prins, a former senior fellow at the Demos think tank, highlighted growing concerns about the Federal Reserve's ability to manage inflation effectively. She stated, "The Fed cannot control inflation, whether it's above 2%, slightly below 2%, or at 3% or 4%. The Fed cannot actually influence supply and demand, geopolitical events, or other external factors driving inflation." This perspective underscores the increasing skepticism among economists regarding the effectiveness of the Fed's current strategy in managing inflation amidst complex global factors.

The Federal Reserve remains far from "easing monetary policy." Despite the fact that price pressures have eased from near double-digit highs in several advanced economies over recent years, numerous households and businesses continue to experience significant financial strain. The average cost of a home loan has nearly doubled as a result of the Federal Reserve's interest rate hikes. This increase means that individuals are now paying much higher mortgages or, for renters, higher rent to cover someone else's mortgage, adding financial burdens before addressing other expenses.

Last year, the price of gold was around $1,919, and it has now risen to approximately $2,370. This increase is largely due to persistent inflation and a surge in demand driven by central banks increasing their gold purchases. Countries like China, India, and Turkey are diversifying their foreign exchange reserves, reducing their reliance on the U.S. dollar. This shift away from the dollar has further contributed to the rise in gold prices as these nations seek to strengthen their reserves with assets like gold, which are perceived as more stable in times of economic uncertainty.

The sharp steepening of the U.S. Treasury yield curve is occurring amid increasing calls for the Federal Reserve to begin cutting interest rates as soon as next week. On Wednesday, the yield on the two-year Treasury note, which is highly sensitive to changes in monetary policy, fell by three basis points, while the yield on the 10-year note rose by roughly the same amount. This narrowing of the yield gap to approximately 14 basis points represents the smallest difference between the two maturities since October 2023, signaling a shift in market expectations and growing anticipation of potential rate cuts.

This trend suggests that investors anticipate the Federal Reserve will lower interest rates sooner and more sharply than previously expected. Swaps traders are betting on more than two quarter-point cuts this year, with the first cut likely occurring in September. As the Federal Reserve prepares to announce its latest interest rate decision next week, the pressure to reduce rates is intensifying. Former New York Fed President Dudley has voiced support for cutting interest rates at the upcoming July meeting, further reflecting the growing consensus among some policymakers and market participants regarding the need for monetary easing.

The recent movement in the yield curve indicates a resumption of the steepening trend, which is a favored bet among investors anticipating a Trump victory in the upcoming presidential election in November. Following the Fed's July meeting, attention will shift to a series of data reports that could reveal signs of material economic weakness. Such data may reignite concerns about the possibility of a soft landing and raise questions about whether the Fed is falling behind the curve, potentially missing an opportunity to cut interest rates in July.

Goldman Sachs chief economist Jan Hatzius recently released a research report suggesting that cutting interest rates at the end of July would be a reasonable move. Given that the market generally expects the Federal Reserve to refrain from action until at least September, if this prediction proves accurate, it would represent a significant surprise for global financial markets this summer. Such an unexpected shift could lead to notable volatility as investors adjust their strategies in response to new monetary policy directions.

Malaysian stock market

The FBM KLCI opened at 1617.08 points, down 4.06 points, and soon fell to 1610.58 points, down 10.56 points. It then pared its losses and closed at 1615.18 points, down only 5.96 points.

The KLCI constituent stocks generally experienced a decline, with Tenaga Nasional Bhd (TENAGA, 5347, Main Board Utilities Group) dropping 40 sen to RM14, ranking third on the price decline list. Kuala Lumpur Kepong (KLK, 2445, Main Board Plantation Group) decreased by 26 sen, reporting a price of RM20.62 and becoming the fourth largest loser on the market. Additionally, PPB Group (PPB, 4065, Main Board Consumer Products and Services Group) fell by 8 sen to RM14.50.

Major indexes generally experienced a decline today, with the construction index recording the largest drop at 2.18%, followed closely by the technology index, which fell by 2.04%. Conversely, the real estate trust, financial services, and transportation and logistics indexes all posted gains. At the close of trading, the FTSE All-Share Index decreased by 82.04 points, settling at 12,465.78 points, while the GEM Index also declined by 46 points, closing at 5,810.86 points.