Situational plays to sustain momentum while KLCI consolidates

KLCI: 1608.95 (-2.5)
DOW: 38712.21 (-35.2)
MSCI Asia: 179.79 (0.7)
FCPO (RM): 3959 (-4)
BRENT (USD): 82.6 (0.68)
USDMYR: 4.7172 (-0.002)
SGDMYR: 3.4887 (0.001)
EURMYR: 5.0722 (-0.001)
AUDMYR: 3.1202 (0.008)
GBPMYR: 6.0176 (0.008)
US: 10-yr yield (%) 4.316 (-0.088)
BNM:10-yr yield (%) 3.858 (-0.002)

Asia/US. Ahead of the major US CPI data and FOMC decision, Asian markets ended mostly lower. Sentiment was also dented by reports of more US trade scrutiny against China and lingering concerns over uneven economic recovery in China after May’s CPI grew less-than-expected while May’s PPI remained stuck in deflation. The S&P 500 (+45 pts to 5,421) and Nasdaq (+267 pts to 17,611) ended at fresh records while Dow eased 35 pts to 38,712 and US10Y bond yield slipped 9 bps to 4.32%, after May CPI showed inflation cooled more than expected. Meanwhile, the Fed kept interest rates unchanged as expected but pencilled in just one 25 bps cut this year (vs 3 guided in Mar) and forecast 4 cuts for 2025 (vs 3 in Mar), reinforcing policymakers’ calls to keep borrowing costs high for longer in 2024 to suppress inflation. 

Malaysia. Tracking lower regional markets, KLCI slipped 2.5 pts to 1,609 to record its 3rd consecutive loss as investors weighed the diesel subsidy rationalisation plan and awaited the upcoming FOMC decision. Trading volume soared 8.7% to 7.6bn shares valued at RM5.3bn while market breadth reversed to 0.73 vs 1.61 previously. Foreigners emerged as the only sellers after net buying RM496m for the 4th consecutive session (-RM83m, June: +RM598m, YTD: -RM168m) whilst local institutions (+RM54m, June: -RM249m, YTD: +RM3.66bn) and local retailers (+RM29m, June: -RM242m, YTD: -RM3.49bn) were the major net buyers. 

Outlook KLCI may continue to trend sideways as investors weigh the diesel subsidy rationalisation plan and a mildly hawkish Fed’s 2024 rate-cut projection, before revisiting 1,632 (YTD high), buoyed by (i) a less volatile RM; (ii) policy tailwinds amid clearer policy frameworks in attracting higher value-added FDIs along with trends such as China + 1; and (iii) political stability to expedite economic and fiscal reforms to foster long-term growth and competitiveness. After rallying 154 pts YTD, we still expect the benchmark to face formidable resistance near 1,650-1,660-1,675 zones, in conjunction with the traditional lull period in June for KLCI (average 10Y/20Y: -1.2%/-0.3%).