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EMS Players Face Challenges Amid Tech Growth

The electronics manufacturing services (EMS) sector in Malaysia has seen mixed performance in 2024 despite being part of the broader tech upcycle, with rising costs, inflation, and supply chain disruptions offsetting growth from increased global demand and outsourcing trends. Key EMS Performances Winners : SKP Resources Bhd  (+76% YTD) V.S. Industry Bhd  (+47% YTD) NationGate Holdings Bhd  (+51% YTD) P.I.E. Industrial Bhd  (+29% YTD) Strugglers : ATA IMS Bhd  (-8% YTD) JHM Consolidation Bhd  (-36% YTD) Growth Drivers and Challenges Diversification Opportunities : The China+1 and Taiwan+1 strategies have positioned Malaysian EMS players to gain market share. However, reliance on major customers, such as Dyson, continues to be a concern. Cost Pressures : High inflation and production costs have affected profit margins. Company Highlights SKP Resources : Recorded a  27% y-o-y net profit increase , benefiting from a recovery in consumer demand. V.S. Indust...

Fed's Pause on Rate Cuts Justified Amid Inflation and Political Uncertainty

 The Federal Reserve’s decision to halt further interest rate cuts this week, despite market volatility and political brinkmanship, appears to align with economic indicators showing moderated inflation and steady economic growth.

Market Reaction and Volatility

On Wednesday, the Federal Reserve delivered an expected rate cut while signaling fewer reductions in 2025 than previously anticipated. This led to a dramatic selloff, with the Dow Jones Industrial Average (DJI) plunging over 1,100 points and extending a historic 10-session losing streak. Similarly, the S&P 500 (SPX) and Nasdaq Composite (IXIC) saw their steepest Fed-day losses in years.

However, relief came on Friday as stocks rallied after the release of November's Personal Consumption Expenditures (PCE) inflation data, which showed softer-than-expected price pressures. The Dow gained nearly 500 points, with the S&P 500 and Nasdaq also climbing over 1%.

Inflation Moderation Offers Relief

The core PCE index, excluding food and energy, rose just 0.1% in November and held steady at a 2.8% annual increase, aligning with the Fed's assessment that inflation is moving towards its 2% target. This data supports projections for potential rate cuts in March 2025, provided inflation remains under control.

Chicago Fed President Austan Goolsbee expressed optimism, noting that inflation "remains on track" and signaling the possibility of further rate reductions over the next 12-18 months.

Impact of Political and Fiscal Uncertainty

Adding to market unease was the narrow avoidance of a government shutdown last week, fueled by bipartisan disputes and interventions from influential figures like Elon Musk. While a stopgap measure provided temporary funding, the episode highlighted concerns over how the U.S. will manage mounting deficits under the incoming Trump administration.

Economists, including Steve Blitz of TS Lombard, suggest the Fed’s cautious approach reflects uncertainties around fiscal policy and potential "Trump shocks" that could influence inflation and growth trajectories.

Economic Resilience Amid Inflation

November data indicated a rebound in private-sector employment and rising real wages, which continue to bolster discretionary spending. However, persistent inflation in core goods and services underscores the challenge of achieving sustained disinflation.

Looking Ahead

Krishna Guha of Evercore ISI forecasts that consistent moderation in inflation could allow the Fed to resume rate cuts as early as March, provided no major shocks derail the economic outlook.

As markets brace for the coming year, investors will closely watch how fiscal policies under the Trump administration unfold and whether the Fed’s cautious stance proves effective in navigating economic and political headwinds.

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