KLCI may waver as investors weigh diesel rationalisation plan and FOMC decision

KLCI: 1617.86 (3.1)
DOW: 38798.99 (-87.2)
MSCI Asia: 179.99 (-0.2)
FCPO (RM): 3975 (15)
BRENT (USD): 79.62 (-0.25)
USDMYR: 4.692 (-0.003)
SGDMYR: 3.4889 (0.004)
EURMYR: 5.1103 (0.002)
AUDMYR: 3.1259 (0.004)
GBPMYR: 6.0037 (0.001)
US: 10-yr yield (%) 4.4335 (0.147)
BNM:10-yr yield (%) 3.872 (-0.003)

Asia/US. Asian stocks treaded water last Friday as investors weighed a better-than-expected China's May trade surplus report and awaited the major US May non-farm payrolls data, which is expected to provide more cues on the Fed’s upcoming rate cut. The Dow slipped 87 pts to 38,799 (WoW: +113 pts) while US10Y bond yield soared 14 bps to 3.43% after surprisingly strong May jobs data dimmed hopes that the Fed would soon follow BOC and ECB for an imminent rate cut. This week, the FOMC decision and economic projections (13 June) will take centre stage, on top of the CPI (12 June) and PPI (13 June) inflation data. 

Malaysia. In sync with the cautious regional markets, KLCI pared its early gains of 7.8 pts to +3.1 pts at 1,617.9 (Wow: +21.2 pts WoW) as investors awaited the key US payrolls data and upcoming diesel subsidy rationalisation plan announcement. Trading volume rose 7.1% 5.73bn shares valued at RM4.05bn while market breadth leapt to 2.07 vs 1.62 a day ago

Outlook KLCI may waver this week as investors weigh the diesel subsidy rationalisation plan (announced on 9 June) and upcoming FOMC decision this week, before revisiting YTD high of 1,632, buoyed by (i) encouraging 1Q24 results and positive technical readings, (ii) a less volatile RM, (iii) policy tailwinds amid clearer policy frameworks in attracting higher value-added FDIs along with trends such as China + 1, and (iv) political stability to expedite economic and fiscal reforms to foster long-term growth and competitiveness. Nevertheless, we expect formidable resistance near 1,650-1,675 zones after rallying 81.8 pts/+5.3% in 2QTD and 163.2 pts/11.2% YTD, in conjunction with the traditional lull period in June for KLCI (average 10Y/20Y: -1.2%/-0.3%).

Source: Hong Leong Investment Bank Research - 10 Jun 2024