MARKET REVIEW

Asian stock markets ended softer on Tuesday with the slide in crude oil prices as well as the political turmoil in Italy. The Nikkei 225 fell 0.55%, while Shanghai Composite Index and Hang Seng Index declined 0.47% and 1.00%, respectively.

On the local bourse, the FBMKLCI (-1.20%, 1,775.84 pts) dived lower on Monday on the back of lower crude oil prices and uncertainties on the potential review of major construction projects, coupled with the toll concessions status. However, selected export-oriented stocks such as Unisem and Kossan were traded actively higher amid weaker ringgit. Market breadth was negative with 600 losers vs 360 gainers. Overall market volumes stood at 2.19bn, worth RM2.28bn.

Wall Street declined for another session after political episode in Italy, coupled with the fresh developments on trade issues between US-China; White House commented that the US will release a list of some USD50bn worth of Chinese goods that will be subject to a 25% tariff. The Dow and S&P500 tumbled 1.58% and 1.16%, respectively.

TECHNICAL OUTLOOK: KLCI

Following the rebound of the FBM KLCI last week, the key index reversed lower after hitting an intra-day high of 1,794. The MACD Indicator expanded negatively below zero. However, the RSI and Stochastics are hovering in the oversold position – indicating that the KLCI could be due for a mild technical rebound. Resistance will be envisaged around 1,800, followed by 1,820. Support will be pegged around 1,733 and 1,760.

We believe the market may turn choppy, tracking the external events such as Italy’s political turmoil and the new developments on the Trump-Kim summit, as well as the falling crude oil prices. Also, Tun Mahathir has confirmed on the cancellation of HSR project, which may contribute towards heightened trading activities on the construction sector, especially MRCB, GAMUDA and YTL.

TECHNICAL OUTLOOK: DOW JONES

The Dow retreated from the psychological level earlier this month and the key index remained in a consolidation phase over the past two weeks. The MACD Indicator is still hovering above zero. However, the RSI and Stochastics are turning lower after issuing the overbought signals last week. We may expect the ongoing consolidation on the Dow to continue over the near term. The resistance will be located around 25,000, while the support will be anchored around 24,000.

On the Wall Street, the ongoing concerns on trade war and the focus on US-North Korea summit may provide volatility towards the stock markets. Also, political turmoil in Italy is likely to put further pressure on equities over the near term. We expect the consolidation to extend on Wall Street.

TECHNICAL TRACKER: CLOSED POSITION

Closed position: We had squared off our position in TM (2.5% loss) on 28 May amid weakening technicals.

TECHNICAL TRACKER: WEST TEXAS INTERMEDIATE

Supply pressures build; Short term consolidation prevails. WTI tumbled 8.4% from 2Y high of US$72.8 amid production boost to ease tight supplies ahead of the OPEC meeting on 22 June. The selldown was also due to the recent US$ strength. Technically, the negatives are likely to be priced in with crucial support near US$64. Near term technical rebound will be capped at US$70 pending the OPEC outcome.

Source: Hong Leong Investment Bank Research - 30 May 2018