Despite spiking to a fresh nine-month high last Monday, fuelled by hopes global interest rates have peaked and rate cuts may follow sometime next year, the local blue-chip benchmark index pulled back subsequently for profit-taking correction after Australia raised interest rates on concerns inflation may stay high for an extended period. It dipped to a one-month low on Friday, as investors were sidelined ahead of the long Deepavali weekend break and following the US Federal Reserve Chair Jerome Powell’s comments that higher interest rates might be needed to tame inflation.

For the week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) eased 4.75 points, or 0.33 percent to 1,445.18, with gains in TM (+12sen), Maybank (+4sen) and Axiata (+5sen) clouded by falls in PPB Group (-84sen), IHH Healthcare (-10sen), Public Bank (-2sen), KLK (-40sen) and Petronas Gas (-28sen). The average daily traded volume last week mildly recovered to 3.4 billion shares, compared to 3.12 billion shares the previous week, while the average daily traded value increased to RM2.01 billion, against the RM1.82 billion average the previous week.

Market sentiment is expected to remain fragile in this holiday-shortened trading week as the US prepares for another fiscal showdown before its current funding expires this Friday, and Malaysia is due to announce its 3Q23 gross domestic product (GDP) on the same day, which could turn out to be weaker than expected. Investors also will continue to speculate on the severity of ongoing geopolitical tension in the Middle East on the rest of the world as more countries unite against Israel to protest against its aggressive pounding of Gaza that killed innocent civilians, children and women.

In the US, the House and Democratic-led Senate have remained divided not only on the direction of fiscal policy but also on many other fronts, including the emergency aid for Ukraine and Israel, funding for border security, etc. Failure to compromise will lead to a government shutdown that will affect 4 million federal workers and have a knock-down effect on the US economy, which already displayed weakness as the high interest rate bites into consumption and economic activities. Some estimates point to a reduction of 0.1 to 0.2 percentage points in quarterly growth for every week of government shutdown. Meanwhile, the consumer price index data for October that will be released on Tuesday is expected to show continued easing to 3.3% YoY versus 3.7% YoY a month earlier, but if the core inflation remains at 4.1% YoY as forecast, that could sustain the higher-for-longer rates narrative.

Consensus is forecasting a GDP growth of 3.1% in the third quarter. A weaker growth could undermine market sentiment unless China’s industrial production and retail sales data for October are released two days earlier, providing comfort that the economic activities in the world’s second-largest economy is improving and could contribute to a stronger fourth quarter economic expansion for Malaysia.

On the local front, the third quarter GDP was forecast to grow by 3.3% YoY based on the Department of Statistics Malaysia’s advanced estimate released on 20 October. The actual figure could underperform expectations as the Volume Index of Services that was released last week indicated that the expansion in the services sector could turn out to be weaker than expected as growth in most sub-segments decelerated compared to 2Q23, except for the Wholesale & Retail Trade, Food & Beverages & Accommodation that rose by 5.1% YoY.

Source: TA Research - 14 Nov 2023