Cautious Undertone Ahead of the FOMC Decision

KLCI: 1447.12 (0.7)
DOW: 36577.94 (173)
MSCI Asia: 161.6 (0.7)
FCPO (RM): 3697 (-38)
BRENT (USD): 73.24 (-2.79)
USDMYR: 4.6842 (0.002)
SGDMYR: 3.4905 (0.006)
EURMYR: 5.0564 (0.015)
AUDMYR: 3.0879 (0.017)
GBPMYR: 5.8859 (0.007)
US: 10-yr yield (%) 4.2006 (-0.033)
BNM:10-yr yield (%) 3.75 (0.02)

Asia/US. Asian markets ended moderately higher with investors reluctant to make big bets in the buildup to this week’s major risk events, i.e. a slew of key economic data from the US and China and major central bank meetings from the US, UK and ECB. Ahead of the key FOMC meeting decision (13 Dec), the Dow soared 174 pts to 36,578 (4th straight gain) as investors assessed the latest Nov inflation readings, with the annual rate eased to 3.1% (Oct: 3.2%) while the core rate remained steady at 4%. Markets are expecting the Fed to keep rates unchanged in Dec meeting and pricing in a 49% probability (vs 40% a week ago) to cut rates by 0.25% as early as May 2024. 

Malaysia. After falling 14.4 pts last week, KLCI inched up 0.7-pt at 1,447.1 to record its 2nd consecutive gain as investors digested PM’s new cabinet line-up and await looming inflation data and global major central banks meetings. Market breadth (G/L ratio) fell to 0.8 staying near 1.2 two days in a row. Foreign investors turned net sellers for a 7th straight session (-RM49m, Dec: -RM293m, YTD: -RM2.9bn) while local retailers (+RM16m, Dec: +RM96m, YTD: -RM0.78bn) and local institutions (+RM33m, Dec: +RM197m, YTD: +RM3.68bn) emerged as the major net buyers. 

Outlook. Following the PM’s announcement of a new cabinet line-up yesterday, investors will re-align their focus on the FOMC meeting guidance. 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 1,490/1,550 levels and (v) policy continuity and execution amid easing political risk premium. 

Source: Hong Leong Investment Bank Research - 13 Dec 2023