Summary

• The latest economic data for Malaysia was rather mixed but largely within expectations. Domestic activities remained stable, as seen in the resilient wholesale & retail trade and stronger domestic-oriented production for October. While exports data remained subdued, petroleum and rubber products rebounded after consecutive months of double-digit decline.
• The Brent oil price experienced volatility in December amid oversupply concerns and tensions in the Red Sea. We foresee any escalation in the Red Sea tensions, the conflicts in the Middle East, future Organization of the Petroleum Exporting Countries (OPEC) output decisions, and evolving global growth expectations to have repercussions on the worldwide supply chain and commodity prices in 2024.
• The Malaysian Government Securities (MGS) market reacted to improving sentiment on US Treasury (UST) yields. The declining yield trend in the US has been aggressive, with the 10y UST yield dropping by 110bps from 4.99% on October 19 to 3.89% by end-December. The rally in local bonds supported improvement in foreign flows and appreciation of the ringgit.
• The ongoing disinflationary trend in advanced economies has sustained the market rally from November’s upswing in equity and bond indices. As such, the US Federal Reserve (Fed) kept the policy rate unchanged in the December meeting while softening its previous hawkish tone. While the US inflation projection has declined, the unchanged unemployment projection could imply growing confidence in meeting the inflation target without significant job losses.