Drifting sideways pending fresh catalysts

KLCI: 1614.42 (3.4)
DOW: 39291.97 (-52.8)
MSCI Asia: 185.01 (0.9)
FCPO (RM): 3908 (-51)
BRENT (USD): 84.66 (-1.09)
USDMYR: 4.707 (-0.002)
SGDMYR: 3.4858 (-0.004)
EURMYR: 5.0942 (-0.004)
AUDMYR: 3.172 (0)
GBPMYR: 6.029 (0.007)
US: 10-yr yield (%) 4.2959 (0.018)
BNM:10-yr yield (%) 3.845 (-0.022)

Asia/US. Ahead of key testimonies from Powell (9 & 10 July), coupled with CPI prints from China (10 July) and the US (11 July), most Asian markets closed higher, with the Nikkei 225 reaching a record high of 41,580 (+1.96%) amid increasing expectations of lower Fed rates. Dow lost 51 pts to 39,292 while Nasdaq (+49 pts to 20,438) and S&P 500 (+4 pts to 5,577) extended their record closings (despite off intraday peaks) after Powell cautioned that prolonged high rates could hinder economic growth but expressed optimism regarding signs of easing inflation. Notable events this week are Powell’s testimony to the House Financial Services Committee (10 July), US CPI and the start of the 2Q24 earnings season this week.

Malaysia. In line with higher regional markets, KLCI rose 3.4 pts at 1,614.4. Despite the headline gain, market breadth was negative for a 2nd session at 0.79 vs 0.67 last Friday while daily volume increased 7.4% to 4.66bn shares valued at RM3.84bn. For the 7th straight day, foreigners (+RM46m, July: +RM440m, YTD: -RM388) recorded net inflows alongside with local institutions (+RM24m, July: +RM57m, YTD: +RM4.27bn) while local retailers (-RM70m, July: -RM497m, YTD: -RM3.89bn) emerged as major net sellers. 

Outlook After surging 160 points or 11% YTD, KLCI may encounter mild resistance around the 1,623-1,632 zones as investors await clarity on the Fed's imminent rate cut intentions, US CPI data, and the onset of the US earnings season. There is also concern about potential parliamentary by-elections if Speaker Johari declares vacancies for six Bersatu MP seats. However, downside risks are expected to be cushioned by (i) expectations of robust corporate earnings and economic growth, (ii) planned investments inflow, (iii) government reforms, and (iv) optimism in investment themes such as tourism recovery, energy transition, Johor's revitalization, increases in disposable income (following EPF Account 3 introduction and civil servant pay rises), and trade diversification/China+1 strategy. 

Source: Hong Leong Investment Bank Research - 10 Jul 2024