MARKET REVIEW

Most Asian stocks traded lower after the Trump-Kim summit as both the leaders signed an agreement to create a lasting “peace regime”, but was commented that the agreement was lacking in details. Nikkei 225 rose 0.38%, but Shanghai Composite Index and Hang Seng Index declined 0.97% and 1.22%, respectively.

FBM KLCI ended marginally lower at 1,763.57 pts (-0.03%) after reversing some losses in the morning trading session. Market breadth was negative as investors remain cautious ahead of the long weekend break; there were 397 gainers vs 469 decliners. Overall market volumes stood at 2.12bn, worth RM2.02bn. Nevertheless, selected construction stocks such as Gabungan AQRS (+1.8%) and HSSEB (+19.5%) managed to trade actively higher amid severely oversold price movements.

Following the smooth US-North Korea summit, traders shifted focus towards FOMC meeting with the 0.25% interest rate hike. Also, in its statement, the Fed could potentially have two more interest rate hikes for the rest of the year. Hence, investors digested the news and took profit on stock markets; the Dow reversed earlier session gains and traded into negative territory at 25,201.20 pts (-0.47%), while the S&P500 fell 0.40%.

TECHNICAL OUTLOOK: KLCI

After the FBM KLCI retested the 1,800 psychological level and pullback over the past four trading days, it has formed a hammer candle. The MACD Line is hovering below zero, threading slightly above the Signal Line. Meanwhile, the RSI and Stochastics are below 50; suggesting upside momentum is soft. As all the technicals are still weak, we believe the upside will be limited around 1,800 over the near term. Support will be pegged around 1,750.

Tracking the negative performance on Wall Street, coupled with the interest rate hikes in the US, we think stocks on the local bourse could trend sideways. Also, ahead of the long weekend break, trading activities may slow down today as local exchange will be trading only half a session. Nevertheless, we may expect short term trading activities to be seen within the O&G (higher overnight crude oil prices) and construction stocks due to oversold signals.

TECHNICAL OUTLOOK: DOW JONES

The Dow has retraced near the 25,500 level over the past three trading days. The MACD Indicator is still hovering above zero. However, the Stochastics oscillator is overbought, we think the Dow could further consolidate towards the 25,000 level over the near term. Nevertheless, should the index surge above 25,500, next target will be located around 26,000.

We believe investors may have to reassess the hawkish tone by the Fed and readjust their investment decisions at least for the near term. Also, should there be any further revealing of fresh tariffs by the US towards its trading partners may pressure the stock markets, curtailing the upside for Wall Street.

TECHNICAL TRACKER: FCPO

Steeply oversold, but any relief rally is likely to be capped amid rising inventories in seasonal uptrend in 2H. In the short to medium term, FCPO outlook remains negative in anticipation of higher inventory in Jun-18 (after registering its 5th straight monthly drop) amid seasonal uptrend in palm production in 2H, weakness in related edible oils and lower restocking activities (post Ramadhan). Despite tumbling 7.3% from monthly high of RM2498 (24 May), FCPO mid to long term outlook remains negative and near term technical rebound will be capped at RM2380-2400 levels.

Source: Hong Leong Investment Bank Research - 14 Jun 2018