Dovish undertone by Fed officials overshadows concerns about Middle East tension and Budget 2024 speech on 13 Oct

KLCI:    1435.2 (17.9)
DOW:    33739 (135)
FCPO (RM):    3560 (-5)
BRENT (USD):    87.7 (-0.50)
USDMYR:    4.728 (-0.0032)
SGDMYR:    3.464 (0.0082)
EURMYR:    5.013 (0.0289)
AUDMYR:    3.033 (0.023)
GBPMYR:    5.800 (0.0331)
US: 10-yr yield (%)    4.65 (-0.15)
BNM:10-yr yield (%)    4.09 (0.01)

Asia/US*. Asian markets rebounded amid expectations that the Fed would pause in Nov meeting to balance the risk of tightening too much after hiking rates by 525 bps from Mar 2022, shrugged off concerns about the impact and risks of the Israel-Hamas unrest. Additionally, sentiment was buoyed by news that China is mulling to unleash 1 trillion RMB stimulus to help the economy meet the official 5% growth target for 2023. Dow gained 134 pts to 33,739 while the US10Y bond yield tumbled 15 bps to 4.65% as the latest round of Fed officials’ speeches touted wait and see approach, overshadowed ongoing Israel-Hamas war. Sentiment was also boosted as the 3Q23 earnings season is underway, which is expected to ease 0.1% YoY from ~7% YoY decline in 2Q23 for the US 500 S&P companies. PepsiCo jumped 1.9% after reporting quarterly results that beat consensus.

Malaysia. Mirroring a rebound in regional markets, KLCI soared 17.9 pts at 1,435.2 to register its 3rd consecutive winning streak. Market breadth turned positive at 1.76 vs 0.69 a day ago, with ADTV rose 13.5% to RM2.02bn. Foreign institutions turned net buyers after net selling RM1.29bn in the last five consecutive session (+RM66m, Oct: -RM1.21bn, YTD: -RM3.18bn) whilst the local retailers (-RM64m, Oct: +RM38m, YTD: -RM0.59bn) and local institutions (-RM2m, Oct: +RM1.17bn, YTD: +RM3.77bn) emerged as major net sellers. 

Outlook KLCI’s near term outlook has improved as technical indicators are on the mend, supported by a slew of less hawkish remarks by Fed officials, which have alleviated concerns related to the Israel-Hamas war, China’s recovery pace coupled with fears of unpopular new taxes and tightening budgets in the Budget 2024 speech. We reiterate our buy on dips stance to ride on a better 4Q23 (YE target: 1,530). Key supports are situated at 1,390-1,410 whilst resistances are pegged at 1,451-1,465 levels. 

Source: Hong Leong Investment Bank Research - 11 Oct 2023