Range Bound on Inflation and Interest Rate Caution

Sideways trading persisted on the local market Tuesday as investors fret over pending inflation data for clues over how long interest rates need to be kept high to fight inflation. The FBM KLCI rose 2.1 points to close at 1,445.55, off an early low of 1,441.89 and high of 1,447.05, as losers beat gainers 564 to 367 on turnover of 3.15bn shares worth RM1.95bn.

Immediate Supports at 1,440/1,433; Resistance at 1,465/1,470

Stocks should extend range bound trade pending more definite cues over the global inflation and interest rate outlook, and as worries over capital gains taxes in the coming Budget kept investors sidelined. Immediate index support cushioning downside remains at 1,440, followed by 1,433, with subsequently 1420/1,400 acting as stronger supports. Immediate overhead resistance stays at 1,465, then 1,470, with the 1,490/1,500 area as next resistance.

Bargain Velesto & Wasco

Velesto will need breakout confirmation above the 27/2/23 high (28.5sen) to fuel further upside towards the 123.6%FP (33sen) and 138.2%FP (36sen) ahead, with uptrend support from the 100-day ma (23sen) and 200-day ma (22sen) cushioning downside. Wasco need to decisively overcome the 138.2%FP (RM1.09) to aim for the 150%FP (RM1.14) and 161.8%FP (RM1.20) going forward, while the rising 50-day ma (98sen) and 100-day ma (92sen) provide good uptrend supports.

Asian Market Sag on Lingering Rate Worries

Asian markets fell on Tuesday as traders remain cautious and await inflation data from across the region for directional cues. Singapore and Australia are expected to report inflation figures for August this week, while Japan will release inflation data for the Tokyo region. In stateside, traders now put the odds of another quarter-point Fed hike by January at a coin toss, and have pushed the likely start of rate cuts to summer. Federal Reserve Bank of Minneapolis President Neel Kashkari said he expects US interest rates to increase again this year given the robust economy. Those sentiments echoed comments last week from Boston Fed President Susan Collins, who said further tightening is certainly not off the table. The European Central Bank and Bank of England have also touted higher rates for longer in policy meetings since the middle of the month.

On economic news, Singapore’s core consumer price index climbed 3.4% in August from a year ago, its lowest rate of increase since April 2022′s figure of 3.3%. The headline inflation rate also slowed to 4%, in line with expectations and its lowest level since January 2022. In Japan, the Nikkei 225 dropped 1.11% to 32,315.05, while Australia’s S&P/ASX 200 fell 0.54% to 7,038.20. South Korea’s Kospi also slid 0.49%, closing at 2,495.76 and the Kosdaq tumbled 2.12%, finishing at 839.17. In mainland, the Shanghai composite index fell 0.43% to 3,102.27, the Hong Kong’s Hang Seng index dropped 1.48% to 17,446.90.

Wall Street Tumble as Economic Data Stoke Rate Hike Fears

Wall Street’s major indexes finished sharply lower overnight after the latest home sales and consumer confidence reports stoked worries interest rates could stay higher for longer. The Dow Industrial Average dropped 1.14% to 33,618.88 in its worst day since March. The S&P 500 slid 1.47% to 4,273.53, while the Nasdaq Composite pulled back 1.57% to 13,063.61. The sell-off on Wall Street came after fresh economic data showed a sharp pullback in new home sales and a significant deterioration in consumer confidence. With recession worries still in play, JPMorgan CEO Jamie Dimon warned markets may not be prepared for a worst-case scenario where the Fed lifts rates to 7% alongside stagflation. Adding to investor anxiety was the potential of a partial U.S. government shutdown by the weekend, which ratings agency Moody's warned would harm the country's credit.

This week also brings other data including on durable goods and second-quarter gross domestic product, as well as remarks by Fed policymakers such as Chair Jerome Powell. Benchmark 10-year Treasury yields have climbed to 16-year highs in the wake of the Federal Reserve's hawkish longer-term rate outlook last week. The prospect of interest rates staying higher well into next year again pressured equity valuations, especially in the technology sector. Online retail giant Amazon fell 4% after the Federal Trade Commission filed a lawsuit alleging that the company wields illegal monopoly power. All 11 S&P 500 sectors ended lower. The heavyweight tech sector dropped sharply as did the rate-sensitive utilities and real estate groups.

Source: TA Research - 27 Sept 2023