MARKET REVIEW

Asian key regional benchmark indices sunk in the red following the trade spat between the US and China as the Trump administration could unveil another round of tariffs on USD100bn China products which may attract another round of retaliatory measures from China. The Nikkei 225 and Shanghai Composite Index closed lower by 0.75% and 0.70%, respectively. Meanwhile, Hong Kong stock exchange was closed for public holiday.

Similarly, sentiment on the local front was negative as escalating trade war concerns between the US and China. The FBM KLCI plunged 1.04% to 1,746.16 pts after the Hari Raya break. Market breadth was negative with loser led gainers by a ratio of 2-to-1. However, market traded volumes were tepid as 1.91bn shares transacted over the session, worth RM2.04bn. Nevertheless, selected export-related stocks within the technology and gloves sectors managed to buck the trend on the back of weaker ringgit; Pentamaster and Top Glove gained 3.3% and 1.4%, respectively.

The Dow dropped more than 200 points after the opening bell following the US-China trade tensions, but the key index managed to reverse its earlier losses led by technology and energy shares; the latter was driven higher with the help from recovering overnight crude oil prices. The Dow and S&P500 fell 0.41% and 0.21%, respectively, while Nasdaq rose marginally by 0.01%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI extended its pullback phase, resulting in the sixth consecutive downward closing. The MACD Histogram is turning lower in tandem with the MACD Line (below zero). The RSI and Stochastics oscillators are trending below 50; indicating that the momentum is weakening. Currently, the immediate resistance will be envisaged around 1,760, followed by 1,780. On the flip side, the support will be pegged around 1,730, followed by 1,710.

Externally, there could be prolong trade concerns in the event of a full-blown trade war the US and its trading partners and we think it may increase the volatility in the markets. Internally, investors may need to digest any new policies or news related to the 100-day manifesto by the PH-led government, which may dictate the direction of the local market. Hence, the trading tone on the FBM KLCI could still be on a consolidation mode over the near term.

TECHNICAL OUTLOOK: DOW JONES

The Dow extended its retracement since it has retested near the 25,500 level last week. The MACD Indicator is flattish and the Stochastics are overbought. We think the near term momentum is weak and may further consolidate above the trendline. The immediate resistance will be at 25,500, while the support will be anchored around 24,500.

We think the ongoing trade war episode between the US-China could dampen overall trading activities on the stock markets, resulting in a negative bias trading tone over the near term. Also, investors may focus on the Fed Chair Jerome Powell and ECB President Draghi speeches tomorrow as well as some economic data (crude oil inventories and Philadelphia Fed manufacturing Index) this week.

TECHNICAL TRACKER: CLOSED POSITION

Yesterday, we had squared off FRONTKN (+12.2% gain) and PANTECH (5.6% loss) in our technical trackers recommendation.

TECHNICAL TRACKER: WTI

Cautious ahead of OPEC meeting; Extended consolidation. After sliding 12.9% from 2Y high of US$72.8 to a low of US$63.4 amid growing concerns over higher OPEC crude production, escalating trade wars and rising inventories. Volatility will prevail until more clarity post OPEC meeting on 22 June. Technically, the negatives are likely to be priced in and prices are likely to remain rangebound within US$63-68.5 band in the short term.

Source: Hong Leong Investment Bank Research - 19 Jun 2018