Upside bias amid dovish narrative expectations from global central banks meetings and potential window dressing effect

KLCI: 1446.39 (4.4)
DOW: 36404.93 (157.1)
MSCI Asia: 160.91 (-0.2)
FCPO (RM): 3755 (14)
BRENT (USD): 76.03 (0.19)
USDMYR: 4.6827 (0.018)
SGDMYR: 3.4848 (0.002)
EURMYR: 5.0415 (0.014)
AUDMYR: 3.0708 (-0.011)
GBPMYR: 5.8789 (0.022)
US: 10-yr yield (%) 4.2333 (0.008)
BNM:10-yr yield (%) 3.75 (0.02)

Asia/US. At the start of a busy week of economic data from the US and China (eg inflation, retail sales, industrial production) and major central bank meetings (i.e. FOMC, ECB and BOE), Asian markets ended cautiously higher, as upbeat US nonfarm payrolls and falling consumer inflation expectations boosted soft landing bets in the US economy. The Dow jumped 157 pts to 36,404 (3rd consecutive gain) as investors brace for the crucial FOMC meeting decision (13 Dec) and the Fed's projections for the economy, inflation, and the number of cuts expected next year. Markets are expecting the Fed to keep rates unchanged this week and pricing in a 50% probability to cut rates by 0.25% as early as May 2024. 

Malaysia. After falling 14.4 pts WoW, KLCI gained 4.4 pts at 1,446.4 in anticipation of a statistically positive year-end window dressing effect and the much-speculated cabinet reshuffle today. Market breadth (gainers/losers ratio) turned positive for a 2nd day at 1.22 vs 1.2 last Friday. Foreign investors turned net sellers for a 6th straight day (-RM79m, Dec: -RM244m, YTD: -RM2.85bn) followed by local retailers (-RM35m, Dec: +RM80m, YTD: -RM0.80bn) whilst local institutions (+RM114m, Dec: +RM164m, YTD: +RM3.65bn) emerged as the major net buyers for a 4th consecutive day. 

Outlook. KLCI may continue its sideways consolidation as investors await more cues of inflation and interest rates outlook from the major global central banks this week. Barring a decisive fall below the support trendline, the odds would still favour the bulls to resume its ascent in Dec. The optimism is supported by (i) expectations that the Fed has ended its rate hike cycle and optimism of a soft landing in the US economy; (ii) the traditional year-end window dressing effect (92% positive hit rate in Dec since the GFC); (iii) an uptick in Nov shareholding from all-time low in Oct (Oct: 19.5%, Nov: 19.6%), (iv) improved core corporate earnings outlook -0.3%/+8.0% for CY23/24, accompanied by end-2023/2024 KLCI targets at 1,490/1,540 levels and (v) easing political risk premium and positive expectations of a cabinet reshuffle.

Source: Hong Leong Investment Bank Research - 12 Dec 2023