MARKET REVIEW

Despite the lingering concerns over trade tensions between the US and China, Asian stock markets traded on a positive tone and managed to recover from the recent market rout, rebounding higher on the final trading day of 1H18. The Hang Seng Index and Shanghai Composite Index rallied 1.61% and 2.20%, respectively, while Nikkei 225 rose 0.15%.

Similarly, the Malaysia’s stock market reversed earlier decline and the FBM KLCI performed a strong rebound, rising 1.55% to end at 1,691.50 pts amid bargain hunting activities as well as final day of window dressing in 1H18 led by banking heavyweights. Overall on the broader market, there were 474 gainers vs. 345 losers. Also, export-oriented sector such as technology and gloves were mostly traded actively higher.

The Dow ended on a higher note last Friday, but registered softer closing for the week as the market sentiment was clouded by the ongoing concerns on trade tension between US and China. The Dow added 0.23% (WoW: -1.26%). Also, energy shares were positive amid the recovering WTI crude oil prices, which marked a 3-year high last week above the US$74 level.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI still closed below the 1,700 psychological level last Friday. The MACD Line is hovering below zero, while the MACD Histogram has turned green over the past two trading days. The RSI and Stochastic oscillators are suggesting that the key index is oversold and could be due for further technical rebound above 1,700. The resistance will be located around 1,700-1,725. Meanwhile, support will be set around 1,640-1,650.

Although FBM KLCI rebounded last Friday, we think the downside risk may persist as trade related headline will continue to drive the market sentiment the week ahead, as the US is set to impose the 25% tariffs on US$34bn in Chinese products on 6th of July. Hence, the FBM KLCI’s upside may be capped over the near term. Nevertheless, O&G stocks are likely to trade higher on the back of steadier crude oil prices.

TECHNICAL OUTLOOK: DOW JONES

The Dow rebounded over the past two trading days following a steep decline from the 25,500 level in June. The MACD Line is below zero and the key index is threading below most of the short term moving averages (SMA20, 30 and 50). However, the RSI and Stochastic oscillators are recovering from the oversold position. We may anticipate further rebound on the Dow, targeting the 25,000 level. On the flip side, the support will be located around 24,000.

In the US, there are some key events that will be monitored by traders, namely the scheduled 25% tariffs on China goods that will take effect on the upcoming Friday, the Fed’s FOMC meeting minutes and US jobs report that will be released on Thursday and Friday, respectively. Hence, with all these major announcements that will be flowing in this week, the Dow may face some choppiness ahead for the Dow and may trend sideways over the near term.

Source: Hong Leong Investment Bank Research - 2 Jul 2018