Market Review

• Asian markets ended mixed in lackluster mode ahead of the long CNY break. Sentiment was also dampened by the impending release of U.S. inflation data during its trading hours in the evening. To recap, a strong U.S. core CPI would likely lead to lower equity prices, higher U.S. bond yields, and a stronger dollar against most currencies with the possible exceptions of the safe haven Swiss franc and yen.

• Tracking mild gains in Dow and regional markets, KLCI inched up 1.9 pts to 1834.9 after the release of a better-than-expected 4Q17 GDP data. Trading volume increased to 1.93bn shares worth RM1.99bn as compared to Tuesday’s 1.62bn shares worth RM2.44bn, with interests focused on ACE and penny stocks. Market breadth was positive with 580 gainers as compared to 338 losers.

• The Dow lost as much as 150 pts to 24490 in early trades following the release of hotter-than-expected Jan CPI number at 0.5% (consensus 0.3%) as investors fretted that the Fed would become more aggressive in clamping down rising prices by accelerating rates hike in 2018. However, the fears receded as the Dow rebounded strongly to fininsh 253 pts or 1% higher at 24893 as investors digested another set of weaker-than expected retail sales report (Jan: -0.3%; consensus +0.2%) that could maintain the Fed’s gradual approach in raising interest rates.

Technical View

Upside bias but trading likely to remain muted

• After the 4.5% slump from a high of 1880 (2 Feb) to a low of 1796 (6 Feb), KLCI staged a 2.1% relief rally to end at 1835 yesterday. On the back of overnight Dow’s 1% rally and improving technical, KLCI is likely to test higher today with immediate resistance near 1837 (50% FR)-1847 (61.8% FR) levels. Conversely, immediate supports are 1828 (38.2% FR)-1815 (23.6% FR). A decisive fall below 1815 will witness a resumption of downdraft towards 1796-1800 zones.

Market Outlook

• Technically, the rebound from recent Dow’s correction remains intact and it may revisit 25.0-25.5k over the near term with key supports at 23.5-24.0k zones. Nevertheless, choppiness will prevail and restrict any rebound beyond 25.5k as investors continue to digest the wild swings amid concerns over inflationary pressures and spiking bond yields (which hit a 4-year high at 2.9%) ahead of the 20-21 Mar FOMC meeting. The new Fed chief Jerome Powell will be faced with some tough decisions in balancing between its dual mandate of price stability and full employment.

• In the near term, sentiment on the local front may stay subdued amid an extended CNY holidays (Bursa Malaysia will close on 15 Feb (2nd half) and 16 Feb) and ongoing Feb reporting season. Moreover, uncertainty over the GE14 could dampen sentiment as there is speculation that Parliament could be dissolved during the 1st session of the 6th Parliamentary meeting, which begins on 5 Mar till 5 Apr.

Source: Hong Leong Investment Bank Research - 15 Feb 2018