Upside bias but market breadth turns cautious as earnings season progresses

Technical pick – RGB 

KLCI: 1612.94 (0.6)
DOW: 40563.06 (554.7)
MSCI Asia: 178.43 (-0.6)
FCPO (RM): 3732 (-22)
BRENT (USD): 81.04 (1.28)
USDMYR: 4.4377 (0.018)
SGDMYR: 3.3678 (0.007)
EURMYR: 4.8869 (0.013)
AUDMYR: 2.94 (0.007)
GBPMYR: 5.7041 (0.023)
US: 10-yr yield (%) 3.9131 (0.078)
BNM:10-yr yield (%) 3.761 (0.006)

Asia/US. Asian markets edged higher, bolstered by softer-than-expected US CPI solidified an imminent Fed’s rate cut in Sep meeting and stronger-than-expected Japan 2Q GDP (QoQ), overshadowed a slew of mixed China’s July retail sales, industrial output and urban unemployment data. Dow surged 555 pts to 40,563 amid solid retail sales print and lower weekly jobless claims, alleviating US recession fears. The soft-landing narrative coupled with cooling inflation solidified the prospect of a rate cut on Sep 18 FOMC meeting. The current consensus points to a 74% probability of 25 bps cut and a 26% probability of 50 bps cut. 

Malaysia. Bucking firmer Wall St and regional markets, KLCI ended flat (+0.6-pt to 1,612.9) as sentiment was dampened by the selldown on property (-3.3%), construction (-1.5%) and technology (-1.6%) indices amid disappointing earnings. Market breadth was bearish at 0.37 vs 1.31 previously while daily volume was muted amounting to 3.57bn shares valued at RM2.77bn. Local institutions (-RM86m, Aug: +RM867m, YTD: +4.34bn) continued their net outflows for a 3rd straight day whilst local retailers (+RM58m, Aug: -RM223m, YTD:  RM4.18bn) alongside foreign investors (+RM28m, Aug: -RM644m, YTD:  RM153m) emerged as major net buyers. 

Outlook Following the rally on Wall St and the filling of 1,593-1,609 gap, KLCI should extend rebound amid positive technical readings and expectations of a strong 2Q24 GDP data (16 Aug). However, after rallying 83.9 pts from 1,529 (6 Aug low) and 158.3 pts YTD, KLCI may experience some volatility as earnings season picks up steam (resistance: 1,625-1,638; support: 1,584-1,600). 

Technically, RGB is poised for further upside, bolstered by a bullish Harami pattern (6 Aug) and MACD golden cross formation. A successful breakout above immediate barriers at 0.42-0.44 will extend uptrend towards 0.465-0.495-0.51 zones while downside supports are pegged at 0.37-0.385-0.40 zones.

Source: Hong Leong Investment Bank Research - 16 Aug 2024