Correction Amid Inflation and Interest Rate Uncertainty

The local benchmark dipped on Tuesday, led by plantation, utility and oil & gas heavyweights, tracking regional weakness as China’s GDP growth target of 5% failed to excite investors. The FBM KLCI slipped 2.29 points to settle at 1,536.98, off an opening high of 1,537.92 and low of 1,518.84, as losers beat gainers 653 to 381 on higher turnover of 3.81bn shares worth RM2.8bn.

Supports at 1,526/1,511; Resistance at 1,559/1,580

Stocks should extend their fall following the overnight US correction amid uncertainty over upcoming inflation and interest rate guidance from the US and European Central Bank meetings. A stronger index will cushion the downside from further profit-taking pullbacks, which will be at 1,526, 1,511 and 1,488, the respective 30-day, 50-day and 100-day moving averages. Immediate resistance will be from the recent 21-month high of 1,559, followed by 1,580, with a stronger upside hurdle seen at the 1,600 level.

Bargain AMBank & CIMB

AMBank needs recovery above the 123.6%FP (RM4.30) to extend the upside towards the 138.2%FP (RM4.46) and 150%FP (RM4.60) ahead, while the 100-day ma (RM4.05) and 200-day ma (RM3.82) provide strong uptrend supports. CIMB need to overcome the 138.2%FP (RM6.62) to aim for the 150%FP (RM6.79) and 161.8%FP (RM6.96) going forward, while uptrend supports from the rising 50-day ma (RM6.14) and 100-day ma (RM5.94) cushion downside.

Hong Kong Led Asian Markets Lower

Most Asian markets slid on Tuesday, led by sharp declines in Hong Kong as China’s GDP growth target failed to impress the markets. The Chinese government retained last year's target for economic growth of "around 5%" for this year, and announced plans to run a budget deficit of 3% of economic output, down from a revised 3.8% last year. It also unveiled plans to issue 1 trillion yuan in special ultra-long-term treasury bonds, which are not included in the budget. Meanwhile, the nation’s premier will defy a recent convention by not holding a press briefing for traders to learn more about the nation’s policy direction. This may undermine its ability to boost confidence in an economy grappling with a prolonged real estate crisis and headwinds from geopolitical tensions with the US. On the economic front, South Korea’s revised GDP figures showed its economy grew 0.6% for the fourth quarter of 2023, while Japan’s capital city of Tokyo’s inflation rebounded from a 22-month low in February. Hong Kong’s Hang Seng index dropped 2.61% to 16,162.64, while Japan’s Nikkei 225 closed nearly unchanged at 40,097.63. South Korea’s Kospi also slipped 0.93% to 2,649.40, and the small-cap Kosdaq fell 0.76% to 866.37. In Australia, the S&P/ASX 200 closed 0.15% lower at 7,724.20, while the Shanghai composite bucked the regional trend by gaining 0.28% to 3,047.79.

Wall Street Tumble on Rate Uncertainty

Wall Street's three main indexes tumbled overnight as uncertainty over interest rate cuts and a shakeup in "Magnificent 7" stocks brought a note of wariness to the market. The Dow Jones Industrial Average lost 1.04% to 38,585.19. The S&P fell 1.02% to 5,078.65, while the Nasdaq Composite dropped 1.65% to 15,939.59. Uncertainty about the outlook for interest rates is weighing on the markets ahead of congressional testimony by Federal Reserve Chair Jerome Powell. His words will be closely watched for any change in the mantra that policymakers need to be convinced inflation is conquered before any move. At the same time, faith in coming easing by the Federal Reserve took a knock after comments by policymaker Raphael Bostic. The Atlanta Fed president said he sees just one rate cut this year, pencilled in for the third quarter.

On the data front, signals were mixed. The ISM Services PMI reported a lower-than-expected expansion in February, and factory orders sharply declined in January. Apple came under pressure after a report that iPhone sales fell 24% in China, adding to Monday's loss in the wake of a USD2 billion EU antitrust fine. Tesla continued to slump as a shutdown at its Berlin Gigafactory added to concerns over a shipment slump and a Chinese price war. Several other mega-cap technology stocks including Microsoft, Meta Platforms and Amazon shed more than 2%.

Source: TA Research - 6 Mar 2024