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Malaysia’s Q1 GDP grows faster than expected on recovering demand

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© Reuters. A woman shops in a wet market in Kuala Lumpur, Malaysia, February 18, 2016. REUTERS/Olivia Harris/Files

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By Rozanna Latiff and Mei Mei Chu

KUALA LUMPUR (Reuters) – Malaysia’s economic growth picked up pace in the first quarter on recovering demand and a stronger labour market as the global economy rebounds from the coronavirus pandemic, the central bank said on Friday.

Gross domestic product rose 5% in the January-March period, faster than the 4% expansion forecast by a Reuters poll and up from 3.6% growth in the previous quarter.

Bank Negara Malaysia Governor Nor Shamsiah Mohd Yunus said the central bank has factored in the Russia-Ukraine war in its projections, and growth in 2022 would be supported by continued expansion in domestic and external demand.

Downside risks include Russia’s invasion of Ukraine and a strict lockdown in China to stem the COVID-19 outbreak, as well as prolonged supply chain disruptions, Nor Shamsiah said.

“Although the downside risks have risen on the global front, we are confident of our growth trajectory and we do not see a risk of any recession in Malaysia,” she told a news conference.

BNM kept its 2022 economic growth forecast at between 5.3%-6.3%, which it had downgraded in March.

Malaysia – which has seen some of the worst COVID-19 outbreaks in the region – lifted most of its coronavirus measures this month, as infection rates slowed amid a ramped up vaccination programme.

On Wednesday, the central bank unexpectedly raised its benchmark interest rate to 2.00% from a historical low of 1.75%, citing a firmer domestic growth path as well as inflationary pressures stemming from the Ukraine conflict and global supply chain disruptions.

“If positive growth trajectory continues and barring any unexpected shocks, it would be appropriate for the MPC (Monetary Policy Committee) to further reduce the degree of monetary accommodation,” she said.

Headline inflation was projected to average between 2.2% – 3.2% this year, unchanged from BNM’s earlier estimate.

Deputy Governor Marzunisham Omar said that while there are price pressures especially on food, inflation in Malaysia remains moderate compared to other countries.

“There is still some slack in the economy. We have price controls on fuels and other food items helping to moderate price pressures,” Marzunisham said, adding that more long-term solutions are needed to rein in inflation.

Economy

Stocks pummeled by growth worries, U.S. dollar climbs

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© Reuters. A passerby wearing a protective face mask walks past an electric screen displaying a graph showing Japan’s Nikkei share average, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan February 24, 2022. REUTERS/Issei Kato/Files

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By Herbert Lash and Chuck Mikolajczak

NEW YORK (Reuters) – Global stocks plunged and the dollar strengthened for the first time in four sessions on Wednesday as concerns about rising inflation on economic growth soured sentiment.

The mood was underscored by a 9% surge in British consumer prices and a faster-than-expected acceleration in inflation in Canada.

British inflation surged to its highest annual rate since 1982 as energy bills soared, while Canadian inflation rose to 6.8% last month, largely driven by rising food and shelter prices, Statistics Canada data showed.

British inflation is now the highest among major economies in Europe, but prices are rapidly rising worldwide, forcing central banks around the globe to hike interest rates and tamp down growth as suggested by a modest decline in U.S. homebuilding in April.

Soaring prices and material shortages have already hit homebuilding, the sector of the economy most sensitive to rates. But the U.S. Commerce Department report also showed a record backlog of houses to be built, indicating a decline in homebuilding potentially might be marginal.

Adding to the gloom caused by inflation were earnings results from Target Corp (NYSE:TGT), whose quarterly profit halved as it warned of a bigger margin hit this year due to rising fuel and freight costs.

Target shares plummeted 24.88%, its biggest one-day percentage drop since the “Black Monday” stock market crash on Oct. 19, 1987, a day after Walmart (NYSE:WMT) Inc warned of similar margin squeezes and saw its stock drop 11.4% for its biggest one-day percentage fall since Oct. 16, 1987.

“It was Walmart yesterday and everybody thought it was a one-off,” said Dennis Dick, head of markets structure and a proprietary trader at Bright Trading LLC in Las Vegas. “Now that Target misses earning a lot more than Walmart even did, they’re scared that consumer is not as strong as everybody think it is.”

MSCI’s gauge of stocks across the globe shed 2.74%, while in Europe, the pan-regional STOXX 600 index closed down 1.14%.

On Wall Street, the Dow Jones Industrial Average fell 3.56%, the S&P 500 lost 4.03% and the Nasdaq Composite dropped 4.73%.

The declines for the S&P 500 and Dow marked their biggest one-day percentage declines since June 11, 2020.

Few analysts are willing to predict the end to selling after a bruising first five months of the year for risk assets given the magnitude of macroeconomic uncertainty, with many anticipating market volatility will be the norm for some time.

The U.S. dollar gained ground as the sell-off in risk assets boosted the safe-haven appeal of the greenback, which was on pace to snap a three-session losing streak, a day after Fed Chair Jerome Powell pledged the U.S. central bank would ratchet up rates as high as needed to combat rising inflation.

The dollar index rose 0.581%, with the euro down 0.8% to $1.0463. The Japanese yen strengthened 0.92% to 128.23 per dollar.

Treasury yields fell, although a steep path for rates remained the prevailing market consensus as the benchmark 10-year note yield hit a one-week high of 3.015% after Powell’s hawkish comments.

The yield fell 8.1 basis points to 2.890% on Wednesday after a soft U.S. housing starts number.

The German two-year government bond yield shot to 0.444%, its highest since November 2011 after more hawkish central banker comments, and last was up 1.6 basis points at 0.386%. The European Central Bank’s Klaas Knot said on Tuesday that a 50-basis-point rate hike in July was possible if inflation broadens.

Gold prices were little changed despite the risk-off environment as looming U.S. interest rate hikes and a resurgent dollar dimmed the metal’s shine.

Spot gold was up 0.1% at $1,816.06 an ounce.

Oil prices dipped in volatile trade, reversing early gains as traders grew less worried about a supply crunch after government data showed U.S. refiners ramped up output.

U.S. crude settled down 2.5% at $109.59 per barrel and Brent settled at $109.11, down 2.52% on the day.

GRAPHIC: MSCI World equity index (https://fingfx.thomsonreuters.com/gfx/mkt/movanzkkopa/world%20stocks.PNG)

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Fed’s Harker: soft landing possible, not forecasting recession

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© Reuters. FILE PHOTO: A worker weighs meat at a butcher shop at Reading Terminal Market after the inflation rate hit a 40-year high in January, in Philadelphia, Pennsylvania, U.S., February 19, 2022. REUTERS/Hannah Beier

(Reuters) – Philadelphia Federal Reserve Bank President Patrick Harker on Wednesday said he believes the central bank can bring inflation down without sending the economy into a recession, in part because the labor market is currently strong.

“We may have a few quarters of negative growth, but again, that’s not what I’m estimating, what I’m forecasting right now,” Harker said in a virtual event with the Mid-Size Bank Coalition of America, adding the economy can withstand a “measured” and “methodical” tightening of financial conditions that would bring down demand. “We don’t want to overdo it, but we have to act.”

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Fed’s Harker sees 50 bps rate hikes in June, July, then ‘measured’ hikes

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© Reuters. FILE PHOTO: Shoppers are seen wearing masks while shopping at a Walmart store, in North Brunswick, New Jersey, U.S. July 20, 2020. REUTERS/Eduardo Munoz

(Reuters) – Philadelphia Federal Reserve Bank President Patrick Harker on Wednesday said he expects the U.S. central bank to deliver two more half-point rate hikes before switching to quarter-point increments until the “scourge” of inflation is beaten back.

With inflation at a 40-year high, the Fed has intensified its efforts to curb demand for goods and labor and ultimately ease price pressures by making it more expensive to borrow.

Earlier this month the central bank raised its policy rate by a half percentage point, its first such move in more than two decades, and Fed Chair Jerome Powell said his fellow policymakers broadly backed two more such rates hikes at coming Fed meetings.

“Going forward, if there are no significant changes in the data in the coming weeks, I expect two additional 50 basis point rate hikes in June and July,” Harker said in remarks prepared for delivery to the Mid-Size Bank Coalition of America. “After that, I anticipate a sequence of increases in the funds rate at a measured pace until we are confident that inflation is moving toward the Committee’s inflation target.”

Under former Fed Chairman Ben Bernanke, the Fed used the term “measured” to refer to a series of quarter-point rate hikes in the mid-2000s.

Chicago Fed chief Charles Evans on Tuesday similarly signaled support for an initial burst of policy tightening and then a shallower rate hike path.

Powell, for his part, has not been as specific about his expectations for the policy path beyond July. On Tuesday he said the Fed will keep pushing on rate hikes until it sees clear and convincing evidence that inflation is cooling.

Fed policymakers say the current bout of high inflation — running at more than three times the Fed’s 2% target — is the product of outsized demand bumping up against constrained supply.

Harker said he expects the U.S. economy to grow 3% this year, enough to keep labor markets tight through the end of the year despite interest rate increases.

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