Peakish Fed Rate and Bullish Technicals May Drive KLCI to Revisit 1,450-1,465 Zones

KLCI:    1449.9 (10.2)
DOW:    34061 (222)
FCPO (RM):    3768 (-16)
BRENT (USD):    84.9 (-1.96)
USDMYR:    4.729 (-0.0213)
SGDMYR:    3.472 (-0.0094)
EURMYR:    5.036 (-0.0109)
AUDMYR:    3.045 (-0.0152)
GBPMYR:    5.774 (-0.0146)
US: 10-yr yield (%)    4.57 (-0.09)
BNM:10-yr yield (%)    4.04 (0.03)

Asia/US*. Mirroring an extended relief rally on Wall St, Asian markets ended higher on sliding bond yields and growing expectations that the Fed’s rate-hiking campaign is over. Sentiment was also boosted by a gradual improvement in China’s Oct services PMI. The Dow soared 222 pts to 34,061 to record its 5th straight winning streak (+5.1% WoW) on short covering activities, as bets rose that rates have peaked after the Nov FOMC left rates unchanged and Oct non-farm payrolls cooled while UST10Y yield fell 9 bps to 4.57% (-45 bps from 16Y high at 5.02%). This week, investors will pay close attention to commentary from Fed speakers for insight into future monetary policy. Earnings wise, over 80% of S&P 500 Index companies had reported better than expected YoY earnings (+3.7% vs -0.3% on 30 Sep) but 4Q23 guidance has underwhelmed (+3.9% vs 8.1% on 30 Sep).

Malaysia. In tandem with the rally from Wall St and regional markets coupled with a resumption of foreign buying and sliding 10Y MGS, KLCI rose 10.2 pts 1,449.9 (+8 pts WoW). Market breadth was bullish at 2.01 vs 1.92 a day ago, underpinned by accompanied by a 5% rise in trading value to RM2.02bn. Foreigners emerged as major net buyers for a 2nd day (+RM211m, Nov: +RM185m, YTD: -RM3.97bn) whilst local institutions (-RM138m, Nov: -RM96m, YTD: +RM4.80bn) and local retailers (-RM73m, Nov: -RM89m, YTD: -RM0.83bn) were the net sellers. 

Outlook. Tracking Dow’s relief rally amid expectations of peakish Fed rates, sliding bond yields coupled with KLCI’s bullish triangle breakout, the index could advance further this week. However, unfriendly macro backdrops i.e. the Middle East turmoil, China’s uneven economic recovery, weak RM (vs USD), as well as lingering worries over Malaysia’s economic and corporate earnings outlook, coupled with foreign selling, the index could face formidable triple tops hurdle at 1,465 and 1,476 (100W MA) during the Nov results season. 

Source: Hong Leong Investment Bank Research - 6 Nov 2023