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.
Financial markets are increasingly reflecting higher chances of a U.S. recession, according to models from Goldman Sachs Group Inc and JPMorgan Chase & Co. This shift comes in the wake of recent market volatility that briefly rattled Wall Street last week.
Key Highlights:
Rising Recession Probability: Goldman Sachs’ models now assign a 41% probability of a U.S. recession, up from 29% in April. This increase is driven by signals from the bond market and the lagging performance of economically sensitive stocks. Similarly, JPMorgan’s models estimate a 31% chance of a recession, rising from 20% at the end of March, largely due to the sharp repricing of U.S. Treasuries.
Market Disconnection: JPMorgan strategist Nikolaos Panigirtzoglou noted a disconnect between U.S. credit and equity markets versus rate markets. While equity markets are only pricing in a one-in-five chance of a recession, rate markets are reflecting much higher odds, with Goldman’s models indicating a 92% chance of a recession within the next year based on the implied changes in the Fed’s benchmark rate.
Impact of Job Growth Data: The weaker-than-expected job growth figures reported on Aug 2 have fueled concerns about an economic slowdown. Although the hiring rate remained above 100,000, the data has intensified fears that the Federal Reserve might have delayed easing monetary policy for too long. This has contributed to the rising recession probabilities in market models.
Equity Market Performance: The S&P 500 is down over 4% since its record high in mid-July, while the tech-heavy Nasdaq 100 has dropped more than 8% from its peak. Despite this, the stock market is not yet fully reflecting the recession risks implied by the bond markets.
Divergence in Economic Forecasts: Despite the increased recession odds in market models, Goldman Sachs’ economists maintain a relatively low 25% chance of a downturn, indicating a cautious optimism compared to the market signals. The consensus among economists has also remained steady at a 30% probability since April, significantly lower than the nearly 70% forecasted in 2023.
Reassurance from Credit Markets: Despite the alarming signals from bond and equity markets, credit and mortgage markets are not showing significant concern, suggesting that the risk of an imminent recession may still be muted.
Outlook: The increased recession probabilities highlighted by Goldman Sachs and JPMorgan reflect growing caution in the markets, particularly in response to recent economic data and bond market movements. However, the relatively low odds assigned by economists and the lack of alarm in credit markets suggest that a recession, while increasingly likely, is not yet a foregone conclusion. Investors will be closely watching upcoming economic indicators and Federal Reserve actions for further clarity.
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