Market review

• Asian markets retreated amid a slump in energy-related stocks following sliding crude oil prices and st ronger yen weighed on Japanese shares, ahead of the crucial U.S. jobs report to assess its implications for Fed rates policy. The MSCI Asia Pacific Index declined 0.5% to 128.25, recording a 1.1% weekly loss as concern over the fallout from the U.K.’s vote to leave the EU returned.

• In the wake of extended Hari Raya mood, lower oil prices and caution ahead of US June non-farm payrolls data, KLCI traded within a wide range of 15.4 pts between an intra-day high of 1656 and a low of 1640.7 before ending 6.2 pts lower at 1644.5. WoW, KLCI ended flat with a mild decline of 0.1%

• Following a stronger-than-expected US June jobs data and a rebound in WTI prices, the Dow rallied 251 pts or 1.4% to 18146, its best level of 2016 and is less than 200 pts of its record close of 18312 (19 May 2015 high). WoW, the Dow gained 1.1%. While the odds almost doubled to ~25% for a hike at meetings in December and February of next year, they are still well below levels predicted at the start of June as investors weigh the outlook for U.S. growth and impact of Brexit on the global economy.

Technical Insights

• Cautious mood to prevail unless index can swiftly reclaim 1657 levels

• After recording a 2-day fall, KLCI is likely to continue its post-Raya sideways consolidation this week on waning technical indicators. Key support is 1633 (near downtrend line), followed by 1618 (lower Bollinger band).

• On the contrary, a decisive breakout of last week’s high at 1657 (38.2% FR) will drive index higher to test 1665 (200- SMA) and 1671 (50% FR) territory.

Market Strategy

• Taking cue from last Friday’s rally on Dow and hopes for stimulus from global policymakers to limit Brexit fallout, KLCI is expected to open the week on a mildly positive mood.

• However, we still expect global markets to remain volatile for a while as profit taking may emerge after recent sharp relief rallies (without material changes in fundamentals).

• Stock on radar (please refer Trading idea report). Engtex is one of the major beneficiaries from the incoming water replacement pipes program nationwide given its track record and sizeable capacity. The stock is poised for a triangle breakout to test RM1.31-1.42 in the short to medium term following the bullish wedge breakout last Friday. Key supports are RM1.10-1.14. Cut loss at RM1.09.

Source: Hong Leong Investment Bank Research - 11 Jul 2016