Market Review

• Led by losses in KOSPI (-1.1%), NIKKEI (-1%) and HSI (- 0.8%), the MSCI Asia Pac index fell 1.42 pts to 176.61, snapping its 6-day rally. The poor sentiment was sparked by renewed fears of creeping inflation and higher borrowing costs coupled with heightened concern over trade wars following comments from the Trump administration last Friday that it was considering imposing import tariffs on metal products.

• Tracking lower regional markets, KLCI lost 1.3 pts to 1856.0 after market traded within a range of 8.1 pts between an intra-day high of 1861.1 and a low of 1853.0. Market breadth was negative with 409 gainers as compared to 556 losers as investors took profit after a strong rally from a low of 1796 (6 Feb), prior to the key focus on the Fed’s Jan FOMC meeting minutes (due on Wed) and a slew of speeches by Fed officials this week.

• The Dow slid as much as 334 pts before reducing the losses to 254 pts or 1% to 24964, halted a six-day rally as disappointing results from Walmart (-10.2%) weighed on major indexes. Meanwhile, the US 10Y Treasury yield inched up 0.02% to 2.89% amid a heavy slate of U.S. debt issuance. Sentiment was cautious as investors will be parsing the Fed’s Jan FOMC meeting minutes (due on Wed) and a slew of speeches by Fed officials to gauge the Fed’s views on the rate outlook and any potential policy changes under the new administration.

Technical View

Key resistances near 1857-1863 gap

• After a strong 3.3% rally from a low of 1796 (6 Feb) to 1856 yesterday, KLCI is expected to take a breather with immediate stiff resistance near the 1857-1863 gap down (5 Feb). Only a successful breakout above 1863 will push KLCI higher towards 1872 (upper Bollinger band) and 1880 levels. Conversely, a fall below 1842 (20d SMA) will ignite selling pressures towards lower supports at 1828 (38.2% FR)-1815 (23.6% FR) levels.

Market Outlook

• Following yesterday slide, Dow’s near term outlook has turned mildly negative after falling below the 50d SMA support near 25.2k. Choppiness will prevail amid concerns over inflationary pressures and spiking bond yields (which hit a 4-year high at 2.91% on 15 Feb before ending at 2.89% overnight) ahead of the 20-21 Mar FOMC meeting. Immediate resistance is 25.6k while support falls on 24.0k levels.

• While sustained buying on selected blue chips heavyweights continue to cushion any sharp fall in KLCI due to spillover effect from overngiht Dow’s 1% fall, keen profit-taking and selling interest could check gains on the broader market. Moreover, any negative surprises from ongoing Feb reporting season and uncertainty over the upcoming GE14 could trigger further profit taking consolidation.

Source: Hong Leong Investment Bank Research - 21 Feb 2018