Market review

• Ahead of the key US jobs data tonight, most Asian markets ended mixed despite a surprise gain in the Chinese manufacturing gauge. Investors are closely monitoring the US jobs data for clues on whether the global economy can take on higher borrowing costs in the US.

• KLCI lost 7.5 pts, tracking lower regional markets and persistent selloff in banking stocks as loans growth in Jul 16 decelerated for the 10th consecutive month while leading indicators were also trending lower. Sentiment was also hurt by selling pressures on telcos following the announcement of spectrum fees, which could squeeze margins further in a highly challenging environment.

• On the back of a sluggish Aug ISM manufacturing index and persistent selloff in energy stocks amid falling oil prices, the Dow slid as much as 106 pts intraday. However, all the losses were covered and the index inched up 18 pts to close at 18419 as market viewed that the weak ISM data will discourage Fed to boost interest rates during the 21 Sep FOMC meeting. Downside bias after breaking support trendline

• Following a 2-day 11.1 pts selloff, KLCI finally breach the key uptrend line support yesterday, signaling further downward consolidation ahead unless the index can swiftly reclaim above the support trendline again.

• Key supports now are situated near 1665 (200-d SMA), 1656 (38.2% FR) and 1650 while resistance levels are 1675 (support-turned-resistance), 1684 (61.8% FR) and 1700.

Market Strategy

• Given further slump in Brent oil prices and rising bets of a 2nd Fed rate hike in the near term, KLCI may consolidate further ahead of the US jobs data tonight and deteriorating technical outlook.

• Stock on radar. We recommend HOMERIZ (Trading Buy) as export-oriented furniture stocks may gain momentum amid a proxy play in strengthening USD amid rising expectations of Fed rate hike in near term. A decisive breakout above RM0.915 will spur prices higher towards RM0.955-1.01 levels. Key supports are RM0.86-0.87. Cut loss at RM0.84.

Source: Hong Leong Investment Bank Research - 2 Sep 2016