by NUR HANANI AZMAN / pic by BLOOMBERG
THE ringgit and FTSE Bursa Malaysia KLCI (FBM KLCI) are expected to benefit from the US stimulus package under US President-elect Joe Biden early next year.
AxiCorp Financial Services Pte Ltd chief global market strategist Stephen Innes said once the stimulus package is introduced, it could give a massive boost to oil prices and in turn, have a positive effect on countries with significant oil exports.
“For markets, the holiday season is going to come early, but likely not in a positive way as I think investors will be more likely to reduce risk significantly into the holidays.
“We have to wait for the US Georgia State Senate run-off which will decide the balance of power in Congress,” he told The Malaysian Reserve (TMR). The US Congress will have to vote on a bill before Dec 11 to keep funding the government.
Innes said encouraging news on AstraZeneca plc’s Covid-19 vaccine’s efficacy, which points to a significant acceleration of the global vaccine rollout next year, has improved the economic outlook expectations.
“Such risk premium compression, higher commodity prices, accelerating inflation expectations, and a weaker US dollar have soothed the runway for a much earlier economic lift-off than the market had expected.
“Still, there are worrying signs that it might not be a long runway,” he said in an analysis titled “Asia Market: Vaccine safety uncertainty weighs on risk” recently.
He said a positive outcome from the OPEC+ meeting is priced in but the vaccine tailwinds and oil rally in recent weeks could make it more difficult to build support for the extension of OPEC+ cuts.
“An extension is still the default outcome, but confirmation of the consensus view will not be an incremental positive, and a failure to extend cuts would be taken badly.
“Let’s just hope the vaccine tailwinds don’t become headwinds as the last thing the oil market needs is to get back on the West Texas Intermediate rollercoaster,” he concluded.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said a bigger US fiscal stimulus would mean a larger positive impact to the US economy and that the subsequent recovery would be swifter.
He believes this would result in more positive vibes in the financial markets, leading to risk-on mode to become prevalent and a more constructive view on the local unit.
“The view on the FBM KLCI will also be positive, but the market would still be looking at Budget 2021 this week as the deliberation at the committee level begins on Monday.
“We see FBM KLCI support level at 1,600 points, and it should linger around such level in the immediate terms,” he told TMR.
He also opined Bank Negara Malaysia would maintain their Overnight Policy Rate (OPR) at 1.75% throughout 2021.
“This is simply because the prospects for economic recovery are looking up. Apart from that, a sizeable portion of Budget 2021 allocations should help cement the recovery momentum.
“In a way, the heavy-lifting will be mostly done by the fiscal policy. So, the case for lower OPR is rather weak,” he said.
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