KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
Canada's inflation rate slowed to 2.7% in June, down from 2.9% in May, according to Statistics Canada. This decline provides the Bank of Canada with some leeway to consider cutting interest rates in its upcoming policy decision on July 24.
Key Highlights:
- Consumer Price Index (CPI): The CPI rose 2.7% year-over-year in June, aligning with economists' expectations. This marks the sixth consecutive month that Canada's inflation rate has stayed within the central bank's target range, returning to its weakest level since early 2021.
- Monthly Changes: On a monthly basis, the CPI fell by 0.1%, contrary to an expected 0.1% increase. Seasonally adjusted, the CPI rose 0.2%.
Market Reactions:
- Canadian Dollar and Bonds: Following the report, the Canadian dollar weakened, trading at C$1.3698 per US dollar. Canada bonds rallied, with yields on 10-year government notes falling 4.8 basis points.
- Traders' Expectations: The likelihood of a rate cut next Wednesday increased to about 90%, up from 80% before the report.
Economic Insights:
- Core Inflation: Despite the overall deceleration, underlying price pressures remain sticky. The three-month moving average of core inflation measures rose to an annualized pace of 2.91% in June, up from 2.52% in May. This, combined with elevated service inflation, suggests the central bank might slow the pace of future rate cuts.
- Central Bank's View: Charles St-Arnaud, chief economist at Alberta Central, noted that there is nothing particularly concerning in the report for the Bank of Canada, implying that the decision to cut rates might be influenced by a cautious approach.
Bank of Canada Outlook:
- Upcoming Rate Decision: The Bank of Montreal has moved up its expectation for a rate cut to next week from September. Benjamin Reitzes, a strategist at BMO, anticipates a 25 basis point cut at the next policy meeting, citing recent soft business outlook surveys, a rising jobless rate, and continued progress in CPI.
- Governor's Statements: Governor Tiff Macklem and his team have previously lowered the benchmark rate by 25 basis points in June. Macklem has indicated that further policy reductions are reasonable if price pressures continue to ease but cautioned against lowering rates too quickly.
Contributing Factors:
- Housing Costs: Mortgage interest costs and rent remain significant contributors to annual inflation, rising 22% and 8.8%, respectively. Excluding shelter costs, the CPI rose 1.3% year-over-year.
- Other Sectors: Excluding food and energy, the CPI increased 2.9% from the previous year. Service inflation grew by 4.8% in June, up from 4.6% in May. Food prices rose 2.8%, while durable goods prices fell 1.8%.
With the final major economic data before the next rate decision now available, the Bank of Canada faces a critical choice. While inflation continues to ease, underlying pressures and external economic conditions will influence their strategy moving forward.
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