Sideways ahead of the FOMC decision

KLCI: 1611.49 (-2.9)
DOW: 38747.42 (-120.6)
MSCI Asia: 179.12 (-1.1)
FCPO (RM): 3925 (-6)
BRENT (USD): 81.92 (0.29)
USDMYR: 4.719 (-0.004)
SGDMYR: 3.4876 (-0.002)
EURMYR: 5.0734 (-0.001)
AUDMYR: 3.1124 (0.002)
GBPMYR: 6.0092 (0.012)
US: 10-yr yield (%) 4.404 (-0.063)
BNM:10-yr yield (%) 3.86 (-0.019)

Asia/US. Ahead of the FOMC decision on 13 June, Asian markets ended lower, led by China and HK markets amid weak travel spending during the Dragon boat festival and renewed concern over the property sector. Sentiment was also dampened by rising policy uncertainties in EU as governing centrists lost grounds to far-right parties during the June 6-9 elections. Ahead of the FOMC decision (13 June), S&P 500 (+14 pts to 5,375) and Nasdaq (+151 pts to 17,344) ended at fresh records while Dow lost 120 pts at 38,747, as a fall in US10Y bond yield (-6 bps to 4.4%) amid a solid USD39bn Treasury sale triggered speculation that upcoming CPI data tonight might strengthen the case for the Fed to cut rates this year.

Malaysia. Tracking lower regional markets, KLCI fell 2.9 pts to 1,611.5 as investors awaited the crucial FOMC decision and assessed the concern of the 2nd round effects as government kicked off the targeted diesel subsidies on 10 June. Despite the headline loss, trading volume soared 17% to 6.98bn shares valued at RM5.1bn while market breadth jumped to 1.61 against 1.18 previously, mainly driven by the strong appetites on small and midcaps stocks and lower liners. Foreigners emerged as major net buyers for the 4th consecutive session (+RM135m, June: +RM681m, YTD: -RM85m) whilst local institutions (-RM38m, June: -RM303m, YTD: +RM3.6bn) and local retailers (-RM97m, June: -RM378m, YTD: -RM3.52bn) were the major net sellers. 

Outlook KLCI may continue to trade in a cautious tone this week as investors weigh the diesel subsidy rationalisation plan and upcoming FOMC decision, before revisiting its YTD high of 1,632 next, 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. However, we expect the benchmark to face formidable resistance near 1,650-1,675 zones after rallying 75 pts/+4.9% in 2QTD and 157 pts/10.8% 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 - 12 Jun 2024