Performance of IPI (Jul 2011)

'''' IPI contracted by 0.6% yoy in July (Jun: +1.3% yoy), worse than the consensus estimate of a +2.4% expansion, on the back of weaker manufacturing performance (+1.5% yoy; Jun: +4.9% yoy), which more than offset the slight improvement in electricity and mining sectors.

'''' Petronas's maintenance shutdown was supposed to have completed by end-Jun, and to our surprise, July's mining output continued to decline, albeit at slower pace.

'''' While Japan's supply-chain disruption has improved, the manufacturing sector continued to be affected by slowdown in demand from advanced economies, as evidenced by the decline in E&E production (-2% yoy;'' Jun: +0.8% yoy).

'''' Coupled with the slow expansion in intermediate imports (Jul: +3.6%), we expect exports and production growth to struggle in mild positive territory. We expect agriculture exports, which has high net retention, to cushion weak industrial performance. Retain our GDP growth forecast of 4.8% for 2011.

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KLCI - Roller coaster ride to continue

'''' In the wake of last Friday's 2.7% plunge on Dow, lukewarm response to Obama's jobs stimulus plan, policy rifts that aggravate the Europe debt turmoil and possible Moody's downgrade of French largest banks (due to their huge exposures to Greek holdings) in the immediate term, investors can expect more chaotic movement this week.

'''' Weekly supports are 1442 (lower Bollinger band) and 1423 (YTD low) whilst resistance zones are situated near 1475 (mid Bollinger band), 1495 (30-d SMA0 and 1500 psychological mark

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DJIA - More downside following the breakdown of uptrend line support''

'''' This week, investors will focus the development in Europe debt crisis and major economic releases e.g. Aug retail sales (14 Sep), Aug industrial production (15 Sep) and Sep consumer sentiment (16 Sep). A weaker-than-expected outcome will likely to trigger another round of stimulus package during the 20-21 Sep FOMC meeting. Technically, VIX and technical indicators are signaling more downside risks for Dow following the breakdown of UTL support. Immediate support is 10801 (22 Aug low), followed by 10604 (8 Aug low). Strong resistance zones are at 11272-11500.