Further Consolidation Ahead of the CNY Holidays and Extended China Markets’ Rout

KLCI: 1511.34 (-5.2)
DOW: 38380.12 (-274.3)
MSCI Asia: 165.84 (-0.6)
FCPO (RM): 3801 (-1)
BRENT (USD): 77.99 (0.66)
USDMYR: 4.749 (0.032)
SGDMYR: 3.5283 (-0.004)
EURMYR: 5.1069 (-0.03)
AUDMYR: 3.0866 (-0.028)
GBPMYR: 5.984 (-0.034)
US: 10-yr yield (%) 4.1579 (0.138)
BNM:10-yr yield (%) 3.823 (0.017)

Asia/US. Asian markets fell, taking cues from a solid US Jan jobs data and Powell’s reiteration of a ‘premature’ rate cut in the near term during an interview on Sunday. Sentiment was further dampened by extended rout in China markets as investors weighed the latest pledges and measures by the government to rejuvenate an ailing economy and to stabilize the sliding equity markets. The Dow began the week on a negative note, slipping 274 points or 0.7% to close at 38,380, impacted by an earnings miss in McDonald's and a rise in treasury yields. Investor optimism for a Federal Reserve interest-rate cut next month diminished as Fed Chair Jerome Powell indicated that central-bank officials are not rushing to lower interest rates. This led to a higher close for US 2-year (+10bps to 4.47%) treasury yields. The current focus is now on media firms, with upcoming results from industry leaders such as Walt Disney, Fox, and Warner Music Group.

Malaysia. Tracking lower regional markets, KLCI slipped 5.2 pts to 1,511.3 on profit taking after surging 58.3 pts in Jan, led by selldown on YTLPOWR, PCHEM, TENAGA, YTL and SIMEPLT. Market breadth was negative for a 5th session at 0.64 vs 0.45 last Friday. Local retail investors (-RM60m, YTD: -RM51m) returned as the only net seller, while local institutions (+RM50m, YTD: -RM83m) and foreign investors (-RM2m, YTD: +RM134m) were the net buyers. 

Outlook The local market is likely to continue trending sideways (resistance: 1,528-1,548; support: 1,484-1,498), with more subdued trading activities ahead of the CNY celebrations (Bursa holiday: 12 Feb). Sentiment is likely to remain cautious, in the wake of the unabated selloff in China markets and renewed weakness in RM (vs USD) amid rising bets that the Fed may delay further interest rate cuts until inflation is moving down to 2% in a sustainable way.

Source: Hong Leong Investment Bank Research - 6 Feb 2024