KUALA LUMPUR, Dec 5 (Bernama) -- Bursa Malaysia closed lower on Friday amid mixed regional market performance as investors turned cautious over a possible rate hike by the Bank of Japan (BOJ) and upcoming US economic data that may influence the Federal Reserve’s (Fed) interest rate decision next week. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) pared most earlier losses to settle 4.55 points easier, or 0.28 per cent, to 1,616.52 from Thursday’s close of 1,621.07. The benchmark index, which opened 0.37 of-a-point lower at 1,620.70, moved between 1,609.67 and 1,621.25 throughout the day. The broader market was negative, with decliners outpacing advancers 604 to 439. A total of 550 counters were unchanged, 1,151 untraded, and 18 suspended. Turnover declined to 3.17 billion units worth RM2.24 billion from 4.48 billion units worth RM2.75 billion yesterday. Rakuten Trade Sdn Bhd vice-presiden...
Market Skepticism Grows Over Trump Administration’s Cost-Cutting Claims
Just weeks into President Donald Trump’s second term, Elon Musk has taken center stage in Washington, aggressively pushing cost-cutting initiatives through the newly created Department of Government Efficiency (DOGE). Yet, despite bold claims of budget savings, bond markets remain unconvinced.
Bond Market Challenges Musk’s Spending Cut Narrative
- Musk boasted of saving $55 billion through swift agency shutdowns, including the US Agency for International Development (USAID) and the Consumer Financial Protection Bureau.
- However, market analysts estimate the actual savings at only a third of that amount—far from the scale needed to tame a $1.8 trillion fiscal deficit.
- The 10-year US Treasury yield has fluctuated between 4.3% and 4.7%, failing to decline despite the administration’s cost-cutting rhetoric.
Reality Check: Political and Economic Hurdles to Deeper Cuts
- Lawsuits have been filed challenging DOGE’s agency shutdowns, casting doubt on the sustainability of Musk’s budget-cutting efforts.
- More significant savings would require politically sensitive cuts to defense, Medicare, or Social Security, areas Trump has largely avoided.
- Meanwhile, Trump’s push for corporate and income tax cuts, along with new tariffs, could widen the deficitrather than reduce it.
Fed and Inflation Pressures Limit Treasury Market Relief
- Inflation rose to 3% in January, leading the Federal Reserve to delay potential rate cuts, further dampening hopes for lower bond yields.
- Investors see Trump’s tax cuts and tariffs as inflationary, limiting the administration’s ability to push rates down.
- Treasury Secretary Scott Bessent aims to cut the deficit to 3% of GDP by 2028, but analysts argue $400 billion in annual savings would be needed to meaningfully impact debt-to-GDP ratios.
Wall Street Still Skeptical of Musk’s Ambitions
- Musk’s promise to cut $2 trillion in spending is widely seen as unrealistic. Even $200 billion in annual cutswould be a major challenge.
- Market reactions remain muted, with bond investors demanding tangible fiscal reforms rather than high-profile agency closures.
- Ian Lyngen, BMO Capital Markets: “There isn’t any practical way for investors to evaluate the effectiveness of DOGE at this stage.”
What’s Next?
- Musk faces increasing pressure to deliver real, lasting deficit reductions as bond yields remain stubbornly high.
- Potential defense spending cuts could be a game-changer, but would require Trump’s political will to push NATO allies to increase contributions.
- The administration’s next budget plan will be closely watched for signs of real fiscal discipline or continued headline-driven cost-cutting claims.
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