The short-term answer to the European sovereign debt woes appears to be in the bag for now but the long term question remains whether the worst is already over. This suggests that while our Malaysian bourse recovery may carry on, the sustainability of the market strength could be doubtful. The key FBM KLCI was up on all four days last week with a cumulative increase of 43.0-point or 3.0%. Climbing through the week too were the FBM 70 Index (+4.0%) and the FBM ACE Index (+2.8%). Trading activity was rapid at a daily average of 1.5b shares in volume and RM1.8b in value, versus the 1.5b units worth RM1.3b traded the week before.

On the surface, a broad proposal was hatched by the European leaders last week. Three major parts have been announced:
(a) a recapitalization plan for the European banks;
(b) boosting the size of the regional bailout fund; and
(c) investors would be asked to take a haircut on their holdings of Greek debts.
But in reality, it is not exactly a done deal yet as only sketchy details have been unveiled with the indicative parameters likely to fall short of the initial elevated expectations. Essentially, the execution risk to drive these plans forward in the coming months remains the key to resolving the crisis.

Meanwhile, sentiment got a lift too from the better economic statistics in the U.S., especially its strongerthan- expected 3Q11 GDP performance, thus easing earlier concerns of a double-dip recession. Together, both the developments in Europe and the U.S. mark a positive step in raising the short-term optimism in global equities. There will be an update on economic and financial market outlooks in the two geographical regions this week when:
(a) the U.S. Federal Open Market Committee meets on Tuesday and Wednesday; and
(b) the Group of 20 nations gather on Thursday and Friday to tackle the European sovereign debt crisis and offer solutions to strengthen the global financial system. As for the Malaysian
economy, we will get to check out the external trade report for Sep this Friday

Technically speaking, after reversing path to cut above the short-term downward sloping trend line, the FBM KLCI will probably stage a positive bias performance in the near term. On its way
up, we expect the benchmark index to run into resistance levels at 1,500 (immediate) and 1,515 (next). At a close of 1,481.82 last Friday, the key market barometer is currently standing 115.3-point or 7.2% below its all-time high of 1,597.08 in early Jul. And following gains made in three of the past four weeks, the index has now recovered 171.3-point or 13.1% from a trough of 1,310.53 in late Sep. Going forward, a resumption of the market downtrend ' which remains possible in the medium-term in our view ' could be forthcoming if and when the bellwether drops beneath the first two support lines of 1,475 and 1,445, respectively.