Summary

• Malaysia’s economy picked up by 3.9% in 1Q2024 (4Q2023: 3.0%) based on the advanced estimate, close to the official 2024 full-year gross domestic product (GDP) forecast of 4%-5%. The manufacturing sector registered a 1.9% rebound after two quarters of contraction, while growth in the construction sector accelerated to 9.8% (4Q2023: 3.5%).
• The Malaysian Government Securities (MGS) and US Treasury (UST) markets continued to retreat due to higher-than-expected US inflation and the Federal Reserve’s (Fed) stance on delaying rate cuts. Local corporate bond yields increased across all categories, ending a multi-month rally.
• Signs of interest rate outlook divergence, such as the German bund rally in March, have surfaced due to decelerating inflation and weak growth prospects in the eurozone, contrasting with a strong US economy. While German bund yields rose in April due to the recent higher US inflation and delay in US rate cuts, eurozone inflation, in contrast, eased to 2.4% in March (Feb: 2.6%). The sustained disinflationary trend is expected to increase rate cut prospects in the eurozone, diverging from the US interest rate outlook.
• In April, the market consensus anticipates only one US rate cut in 2024 (March consensus: two cuts) amid signs of sticky inflation. Given a trend of continued mixed data signals, we expect the Fed to respond with policy adjustments should the labour market weaken, indicating a possibility of rate cuts despite an elevated inflation level. Thus, the recent sharp pushback against the earlier expectations of more aggressive central bank rate cuts could reverse.