MARKET REVIEW

Asia/US. Despite PBOC’s measure to lower the borrowing cost of 14-day reverse repos by 10 bps to 2.15% and the lifting of a two-week lockdown in Chengdu, MSCI All Countries Asia Pacific index fell 0.47% to 149.6 (its 5th straight decline) as investors await the key FOMC decision on 22 Sep (Malaysian time 2am). After sliding 1,330 pts WoW, Dow staged a 197-pt technical rebound ahead of the crucial FOMC’s decision on Thursday, which is expected to deliver a 3rd straight 75 bps rate hike. On the data front, US homebuilder index slid for the 9th straight month to 46 in Sep (Aug: 49, forecast: 47), the lowest level since May 2020 amid elevated interest rates, persistent building material supply chain disruptions and high home prices.

Malaysia. Tracking sluggish regional markets and a resumption of foreign net outflow (Sep:-RM0.3bn; Aug: +RM1.9bn), KLCI tumbled 15.8 pts to 1,451.5, registering its 5th

consecutive fall. Against a negative market breadth backdrop in four of the five trading days, daily average turnover stood at 2.2bn shares valued at RM1.8bn, vs last Thursday’s 2.6bn shares worth RM2.7bn.

TECHNICAL OUTLOOK: KLCI

Following the uptrend line and multiple key MA supports breakdown, the bears are in control as the KLCI extended its downward consolidation for a 4th consecutive session. Unless swiftly reclaiming above 1,468 (50% FR) and 1,482 (38.2% FR) hurdles, an extended downward consolidation may prevail within our envisaged 1,436 (76.4% FR), 1,428 (23 June low) and 1,408 (25M low) supports.

MARKET OUTLOOK

Undoubtedly, the focus of the week will be on the FOMC’s decision, with traders have fully priced in a 75 bps hike (anything > 75bps hike will be a negative surprise). According to FedWatch Tool, traders are pricing in a 62% probability of a 75bps hike in Nov meeting and 46% bet of another 50bps hike for the Dec meeting to bring the Fed rate at 4.25-4.50%. Meanwhile, the US 10Y/2Y bond spread was -0.46% overnight, aggravating concerns about a looming US recession. This, together with the on-going China headwinds is likely to drag the world toward a global recession in 2023. In wake of the external headwinds, sliding USDMYR (+9.2% YTD to 4.55), soaring 10Y MGS yield (+0.6% YTD to 4.20%), GE15 fluidity, and a resumption of foreign net selling in Sep, KLCI is expected to trap in downward consolidation in the short term (supports: 1,408- 1,428-1,436; resistances: 1,468-1,482-1,500).

Source: Hong Leong Investment Bank Research - 20 Sept 2022