Tug-of-war between bulls and bears amid results season, US economic health, geopolitics and Fed rate cuts

KLCI: 1624.25 (-1.3)
DOW: 40347.97 (-494.8)
MSCI Asia: 182.28 (-1.3)
FCPO (RM): 3860 (-10)
BRENT (USD): 79.52 (-1.2)
USDMYR: 4.5693 (-0.021)
SGDMYR: 3.4141 (-0.015)
EURMYR: 4.925 (-0.045)
AUDMYR: 2.9812 (-0.002)
GBPMYR: 5.8283 (-0.063)
US: 10-yr yield (%) 3.976 (-0.054)
BNM:10-yr yield (%) 3.728 (0)

Asia/US. Bucking Wall St rally overnight amid Fed’s rate-cut pivot, Asian markets ended mixed, led by a 2.5% slump on Nikkei 225 after the BOJ flagged more interest rate hikes, while China markets stalled on more underwhelming Caixin manufacturing PMI. Dow slid 494 pts to 40,348 while the US10Y bond yield slid 5 bps to 3.98% amid fears over a hard landing in the US economy resurfaced overshadowed potential rate cut in Sep, as the US ISM manufacturing contracted by most in eight months while initial jobless claims rose to one-year high as hiring slows.  On corporate earnings, META rose 4.8% on upbeat earnings shares rallied 7.3% amid earnings beat while QCOM plunged 9.4% on poor guidance. After hours, INTC and AMZN tumbled 20% and 5%, respectively on disappointing results and weak guidance while AAPL gained 0.4% on upbeat earnings.

Malaysia. In tandem with tepid regional markets, KLCI eased 1.3 pts to 1,624.3 in a tepid mode as trading volume tumbled 21% to 3.51bn shares valued at RM2.71bn. Market breadth remained negative for the 3rd consecutive day 0.68 vs 0.80 previously. On fund flows, local institutions (+Rm7m, YTD: +RM3.47bn) and foreigners (+RM11m, YTD: RM502m) were the net buyers whilst local retailers (-RM18m, YTD: -RM3.97bn) were the net sellers.

Outlook As investors weigh earnings uncertainty in the upcoming Aug results season, heightened geopolitical tensions in the Middle East (after the assassination of a top Hamas leader) and concern of the slowing US economy, KLCI may extend its consolidation in the short term, in sync with a seasonally weak month of Aug (average KLCI growth for 10Y/20Y: -1.1%/-1.4%). However, downside is likely to be cushioned by a dovish Fed, strengthening ringgit, and continued net inflows from foreign investors. Unless staging a decisive breakdown below the 1,600-1,606 support levels, KLCI (YTD: +170 pts/11.7%) may continue its upward trajectory towards 1,638-1,650-1,660 after a healthy consolidation.

Source: Hong Leong Investment Bank Research - 2 Aug 2024