Surprisingly strong at 4.3% yoy…or may be not. Iwas expecting a pickup as we had the minimum wage revision, civil service pay revision, cut in the OPR and cut in the EPF contribution rate. The end result was a 6% (qoq SAAR), which is the best quarterly growth rate since 4Q2014. I haven’t delved into the details yet (the bond market tantrum is occupying my working hour attention at the moment), but apparently there was a pretty decent growth contribution from external trade as well.
Donald Trump as POTUS
My first reaction was…
…but after sincere reflection and a weekend to think it over, it’s still…
The global bond market selloff was I think driven by two things:
- Investors were positioned for a Clinton win, which in the event of a Trump win meant everyone was essentially out of position. That caused a somewhat panicky rebalancing of global bond and equity portfolios. The main thesis was a Trump presidency would benefit certain sectors (like energy) and cost others (like tech) more than Clinton’s policy platform. Hence the largely positive reaction of US equity markets (Dow up, S&P marginally up, Nasdaq down). The overall higher level of fiscal spending, given that the US economy is near full employment already, would also drive down bond prices (excess supply of government bonds) while simultaneously raising inflation expectations. Hence the Treasury market selloff.
- Trump’s position on trade is unequivoically negative for all US trade partners. Hence the selloff in most emerging markets, and Malaysia is no exception. As to why the Ringgit moved more than most: the bigger the party, the bigger the mess you have to clean up afterwards. I never thought the strengthening of the Ringgit over the 1H2016 was sustainable. It was driven by two things, which was the inflow of cash from 1MDB related asset sales and bond market positioning for a BNM rate cut. The former was a one-off, and the latter looks to be off the table (for now).
As of this writing, the Fed hasn’t yet released the numbers on the USD trade weighted index for last week, but I don’t doubt its showing an appreciation of the USD against everyone else.
Let me put all this ruckus in a bit of perspective. This is the Fed’s broad nominal and real indexes for the USD (index numbers, 1990-2016, monthly average):
From a technical perspective, the log difference between the nominal and real indexes can be taken as a measure of over- or under-valuation of a currency. Here’s what that particular measurement looks like for the USD (log difference):
The USD has been overvalued since the early 1990s, and the misalignment has been getting stronger since the GFC. Here’s the equivalent charts for the MYR:
The Ringgit looks undervalued, but not by much.
Lastly, here’s my preferred valuation index for the MYR – an equal weight index against the AUD, CAD and MXN (index numbers, 1992-2016, monthly average):
On this measure, the Ringgit doesn’t look particularly weak either. Equivalently, you could say that the Ringgit’s peers are all equally weak. Either way, it doesn’t look like global investors are treating the Ringgit any differently than any other currency with the same economic structure.