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...
Powell’s Pivot Sparks Rally
U.S. Treasuries rallied Friday after Fed Chair Jerome Powell signaled readiness to cut rates as soon as September, ending an eight-month pause. Powell highlighted that labor market risks now outweigh inflation concerns, opening the door to easier policy.
Market reaction:
2-year yield: –10 bps to 3.7%, near early-August lows.
Curve steepening: 5s30s spread widened to highest since 2021, reflecting bets that short-term yields will fall faster.
Rate pricing: Futures imply two cuts by year-end, with a small chance of a third.
Still, traders only assign an ~80% probability of a September cut, underscoring caution ahead of key economic data.
The Data Test Ahead
Bond bulls must navigate a series of critical catalysts before the Sept. 17 FOMC meeting:
PCE inflation (this week): Expected to show core at 2.9%, near post-2023 highs.
Jobs report (early Sept.): Prior data showed weaker-than-expected job growth.
CPI & PPI (pre-FOMC): Final inputs that could sway Fed decision.
Treasury supply: US$183B in new auctions (2-, 5-, 7-year maturities) will test investor demand.
Analysts warn a hot inflation print or stronger growth data could temper bond gains, recalling 2024 when long-end yields rose despite Fed cuts.
Risks of Cutting Into Sticky Inflation
The bond market faces mixed signals:
Supportive: Weak jobs data and Powell’s dovish tilt support front-end Treasuries.
Risk: Persistent tariffs and service inflation could re-anchor expectations higher, limiting long-end rallies.
Strategists caution:
“Anything beyond two-and-a-half cuts priced in pre-payrolls is too aggressive.” – John Briggs, Natixis.
“Front end has Powell’s support, but the long end isn’t convinced.” – Padhraic Garvey, ING.
BofA: Cutting into sticky inflation risks unanchoring Fed credibility on its 2% target.
Political Overhang – Fed Independence in Question
President Trump continues to pressure the Fed for deeper cuts, even threatening to fire Governor Lisa Cook over allegations she denies. Market participants worry that political interference could push the Fed into over-easing, stoking inflation and undermining bond market confidence.
Investor Positioning & Takeaways
Front-End Treasuries: Attractive, with clear policy support if Fed begins easing.
Long-End Treasuries: Vulnerable to sticky inflation, heavy issuance, and deficit concerns. Curve steepening trades remain favored.
Volatility Risk: Any stronger-than-expected data (jobs, inflation) could spark a bond selloff before the September meeting.
Bottom Line
Powell’s dovish pivot gave bond investors relief, but sustained gains require supportive data. With inflation still elevated and politics clouding the Fed’s independence, the rally remains fragile. The next three weeks of macro data will determine whether September marks the start of a lasting bond bull cycle — or just another false dawn.
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