Market Review

• Following the Fed’s Jan FOMC meeting minutes, coupled with the negative performance on the overnight Dow, the Asian stock markets traded on a weaker tone. With the Fed having a more positive stance on the economic outlook, traders were focusing on the potential of higher interest rates environment. The Nikkei 225 and Hang Seng Index declined 1.07% and 1.48%, respectively, but Shanghai Composite Index advanced 2.17% after the long Lunar New Year holiday.

• In tandem with Wall Street, FBM KLCI slipped 3.10 pts to 1,855.07 pts. Market breadth was negative with decliners slightly ahead of advancers by 453-to-442. Overall traded volumes were still below the 100-day daily average volumes of 2.94bn at 2.34bn, worth RM2.06bn. Generally, stocks on Bursa Malaysia were focusing on newsflows driven trading ideas such as Kretam and AAX on the back of the corporate exercise and better-than-expected financial results, respectively.

• Following the statements from one of the Fed officials, James Bullard commented that central bankers will need to carefully increased interest rates this year as it may slowdown the progress of the economy, the bond yield eased from Wednesday's peak and market traded on a slight relief note; the Dow and S&P rose 0.66% and 0.10%, respectively led by energy stocks on the back of higher Brent oil price at US$66.39 (+1.4%).

Technical View

Extending the sideways move with upward bias view

• We think the recent sharp rebound is still valid and the recent 3-day sideways consolidation is a healthy retracement phase to digest the recent gains and likely forming a bullish flag pattern. With the recovery in MACD Indicator and Stochastics oscillator, the FBM KLCI could poise for a breakout above 1,862, targeting 1,870-1,880. Meanwhile, if the FBM KLCI violates below the 1,840 level, next support will be pegged around 1,820-1,830.

Market Outlook

• Traders may continue to focus on the fluctuation of treasury yield and the market is likely to reassess the potential impact of a higher interest rate environment. Hence, Wall Street may extend its consolidation phase over the near term after the sharp rebound three weeks back.

• On the local front, we believe the recent consolidation phase may be a good entry point to selected GLCs ahead of the widely anticipated GE14 this year. At the same time, traders could monitor stocks movement during the ongoing reporting season to participate in potential explosive move should there be companies reporting stronger-than-expected results.

Source: Hong Leong Investment Bank Research - 23 Feb 2018