Market Review

• Asian markets rose in light of another record close in Dow following strong US payrolls data and positive optimism of Trump’s tax overhaul plans. Overall, sentiment was positive as investors focus their attention on the launch of bitcoin futures and await policy statements from central banks in the U.S. (14 Dec Malaysian time) / Eurozone (15 Dec) to gauge the potential road maps for 2018.

• Tracking higher regional markets, KLCI jumped as much as 4.4 pts to 1725.7 before easing 1.8 pts or 0.1% to 1719.5 amid lack of fresh impetus. Despite the headline loss, broader market sentiment remained firm with 444 gainers as compared to 409 losers, led by notable gains in FBMTECHNOLOGY (1.10%), FBMSCAP (+0.62%) and FBMACE (+0.38%).

• Ahead of the widely watched 2-day FOMC meeting, the Dow notched another record close, rising 57 pts to 24386 amid strong gains in energy and tech stocks, shrugging off news of a terrorism incident in the heart of New York City. Overall, investors are pricing in a 25-bsp-hike and bracing for a Fed's gradual tightening path agai nst a backdrop of continuing robust U.S. economic conditions with vibrant labor market and forecasts for inflation to pick up.

Technical View

Sideways with an upside bias

• Despite the 1.8 pts pullback, we remain cautiously optimistic of KLCI near term outlook, as technicals are on the mend. A successful breakout above 1728 (38.2% FR and downtrend line) levels will arrest the downtrend and spur KLCI to retest the 1738 (50-d SMA) and 1754 (200-d SMA) zones.

Market Outlook

• Despite mild volatility ahead of FOMC decision, Dow mid to long term outlooks remain bright amid positive expectations of Trump’s tax overhaul plans, positive economy and corporate earnings outlooks, supportive monetary policies coupled with expectations of more business-friendly policies. Dow’s short term supports are 23.2-23.5k while upside targets fall at 24.8-25.3k zones.

• As 3Q17 reporting season was over (generally within market expectations), KLCI could inch up further in the seasonally stronger Dec month in anticipation of year-end window dressings (average of 1.9% gains in the last 10 years with a 90% successful hit rates), supported by ringgit appreciation bias and oil price strength. Nevertheless, overall sentiment will remain edgy, underpinned largely by GE14 uncertainty and 2018 earnings prospects coupled with fears of vicious economic cycle as a result of the current episode of property imbalances.

Source: Hong Leong Investment Bank Research - 12 Dec 2017