HLBank Research Highlights

Author: HLInvest   |   Latest post: Mon, 2 Dec 2019, 9:11 AM


Traders Brief - Cautious Ahead of the FOMC Meeting and US China Trade Talks

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Most Asian markets declined last Friday amid concerns that the Fed may be less aggressive than expected on monetary policy when it meets 30-31 July amid ECB’s President Mario Draghi remarks that the risk of a recession in the region was low despite earlier signalling a rate cut and more monetary easing ahead. Sentiment was also weighed by news that Washington and Beijing will restart face-to-face talks starting 30 July in Shanghai.

Tracking lower peers in ASEAN markets, KLCI slipped 8.6 pts to a near 4M low of 1648, weighed down by losses in PBBANK, SIMEPLNT, MAXIS, TENAGA, MAXIS and MISC, despite strong gains in Genting and GenM as the dispute between Fox-Disney and GenM is fully resolved and its outdoor theme park will proceed with partly Fox and non-Fox IP. WoW, the index fell 10.2 pts to record its 3rd straight losses.

Wall Street rose last Friday after strong earnings from tech giants like Alphabet and Intel and a better-than-expected GDP print pushed the S&P 500 to a new all-time high. The S&P jumped 0.7% to close at 3026 while the Nasdaq also hit an all-time high, rising 1.1% to 8330. Meanwhile, the Dow gained 51 pts to 27192. WoW, the S&P 500 and Nasdaq posted 1.7% and 2.3% gains, respectively while the Dow ended mildly higher by 0.1%.


After a tight range bound pattern in the last 5 trading sessions within 1647-1660, KLCI fell 8.6 pts to end at 1648 near the LT downtrend line support near 1648. We think the KLCI may still undergo an extended consolidation unless it is able to convincingly stage a successful breakout above key resistances at 1665 (50% FR) and the 200D SMA (now at 1673) zones. On the flip side, should the index further below 1648, the outlook could turn bearish with potential slide towards 1633 (50% FR) territory.

Ahead of the two major developments focusing on the US-China trade talks in Shanghai (30 July) and FOMC meeting (30-31 July), sentiment on the broader market could turn more cautious in this holiday-shortened week (Bursa will close on 30 July in conjunction with the installation of Agong). We see an extended sideways pattern near the LT down trendline support of 1648 July. Should the index further below 1648, the outlook could turn bearish with potential slide towards 1633 (50% FR) territory. Resistances are pegged at 1665-1673 levels.


In the near term, Dow’s underlying trend still remains firm as long as the index is able to stay above the 20D SMA and 30D SMA levels, with major resistance at all-time-high of 27398 (15 July), followed by 27500-27800 zones. On the flip side, a decisive break down below 27000 will trigger more selloff towards 26400-26800 levels.

In the near term, all eyes remain focus on the ongoing reporting season and the resumption of US-China trade negotiations (with expectations for a progressive deal are low) coupled with the crucial 30-31 July FOMC meeting (consensus expects a minimum 25bps cut). While most companies are beating revised-down estimates with over 75% of the 40% of the S&P 500 that had released results so far posted a stronger-than-forecast profit, but the tone and substance of management commentary is on the cautious side, with uncertainty about global trade as notable headwind. We opine that the Dow to range bound within 26800-27400 zones.


Last Friday, we had squared off our technical tracker positions on TALIWRK (1.6% return), K1 (0.0% return), PESONA (4.1% return) as well as cut loss on our 3Q19 stock pick BAHVEST (8.3% Loss).


Source: Hong Leong Investment Bank Research - 29 July 2019

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