Ripe for An Oversold Rebound Amid Soft US Core Inflation and Upbeat Bank Earnings 

KLCI: 1562.12 (-14.3)
DOW: 43221.55 (703.3)
MSCI Asia: 177.24 (0.8)
FCPO (RM): 4264 (-103)
BRENT (USD): 82.03 (2.11)
USDMYR: 4.499 (-0.008)
SGDMYR: 3.2923 (0)
EURMYR: 4.6387 (0.015)
AUDMYR: 2.7922 (0.002)
GBPMYR: 5.4973 (0.008)
US: 10-yr yield (%) 4.6531 (-0.139)
BNM:10-yr yield (%) 3.797 (-0.004)

Asia/US. Asian markets mirrored Wall St's overnight rally but gains were limited as investors remained cautious ahead of key US inflation data and awaited more concrete policy measures from Beijing. 

The Dow rallied for a 3rd day (+703 pts to 43,221) and the US10Y bond yield slid (-14 bps to 4.65%), buoyed by a soft US core inflation and blowout earnings from JPM, WFC, C and GS. Sentiment was further boosted by the ceasefire and hostage release deal between Israel and Hamas to end a 15-month war in the Gaza Strip. For the rest of the week, focus shifted to the start of 4Q24 earnings season (projected to grow 11% YoY), particularly from BAC, UNH and MS, and the retail sales (Jan 16) and housing starts (Jan 17) reports, which could influence the upcoming FOMC decision (Jan 30) following the lower-than-expected core PPI and CPI readings.

Malaysia. Contrary to the positive regional markets, KLCI extended its downtrend (-14.3 pts to 1,562.1) for the 3rd straight day, led by a slump in selected heavyweights (i.e. TENAGA, GAMUDA, CIMB, TM, MAYBANK and PETDAG), as investors continued to assess the repercussions of US AI-chip export curbs on local DC projects and persistent foreign exodus. Foreign institutions intensified their net outflows for the 10th day (-RM328m, Jan: -RM1.50bn, Dec: -RM2.88bn) while local retailers (+RM148m, Jan: +RM525m, Dec: -RM797m) alongside local institutions (+RM180m, Jan: +RM979m, Dec: +RM3.68bn) emerged as major net buyers.

Technical view From a 3M high of 1,644.5 (Dec 31), KLCI extended its consolidation to 1,562.1 yesterday, its lowest close since intraday low of 1,529.1 on Aug 5. With the benchmark firmly slipping back into a downtrend channel, a deeper consolidation is expected within 1,550 (downtrend channel) zones, before a potential rebound. On the upside, key barriers are situated at 1,589 (61.8% FR), 1,600, 1,612 (200D MA) and 1,625 (38.2% FR) levels. 

Outlook Mirroring the relief rally from Wall St and KLCI’s grossly oversold readings after sliding 4.6% in Jan MTD, KLCI is poised for a technical rebound targeting1,589-1,600-1,611 levels. Nevertheless, volatility persist (support: 1,530-1,550) as investors continue to weigh: (i) the implications of Trump 2.0 policies; (ii) China’s economic challenges; (iii) persistent foreign outflows; as well as (iv) upcoming major central banks’ policy decisions, notably from the BOJ (Jan 25), ECB and FOMC (Jan 30). 

Source: Hong Leong Investment Bank Research - 16 Jan 2025