MARKET REVIEW

Most of the key regional benchmark indices skidded sharply after Trump administration released another list of tariffs on USD200bn worth of China products. The trade spat between US and China has intensified and selling pressure resurfaced with Shanghai Composite Index wiping off 1.78%, while Hang Seng Index and Nikkei 225 fell 1.29% and 1.19%, respectively.

Meanwhile, the Malaysia’s stock market ended higher on a last minute bargain hunting activities after trading in the negative region for most of the session; the FBM KLCI inched higher by 0.10% to 1,688.77 pts. Overall broader market breadth, however was negative with losers led gainers by a ratio of 2-to-1. Market traded volumes stood at 2.08bn, worth RM2.03bn. Most of the trading activities were focusing within index call and put warrants as a proxy to trade the index futures market amid increasing trade tensions.

As Trump’s administration published a new list of 10% tariffs on USD200bn Chinese products, sentiment turned sour and Wall Street snapped its 4-day winning streak. The Dow fell 0.88% led by Boeing and Caterpillar Inc, while S&P500 and Nasdaq declined 0.71% and 0.55%, respectively.

TECHNICAL OUTLOOK: KLCI

Despite the rebound in the FBM KLCI, the key index continues to stay below the SMA200 and the MACD Line is still below zero. Nevertheless, the momentum oscillators (RSI and Stochastic) are recovering and the key index could be due for a technical rebound. Key resistances will be located around 1,700-1,725. Support will be pegged around 1,640-1,650.

Tracking the weaker performance on the overnight Dow, we opine that market tone could remain tepid and stocks may extend its consolidation phase over the near term. Also, the steep 1-day decline on the crude oil prices could affect the trading sentiment on the O&G. Meanwhile, the FBM KLCI is likely to rangebound within 1,660-1,700.

TECHNICAL OUTLOOK: DOW JONES

Although the Dow retraced after rallying for 4 days, the price action continue to hover within the symmetrical triangle formation. The MACD Line is recovering towards zero, while the Stochastic is hovering above 50. Both indicators are suggesting that the upward momentum is intact. The Dow could be revisiting the 25,000 over the near term, while the support will be located around 24,000.

We believe market may stay cautious with the recent new trade developments and China has pledged to retaliate earlier. Hence, traders will take the opportunity to tone down their exposure on equities in view of the heightened market volatility over the near term. The Dow is likely to trend sideways within the 24,000-25,000.

Source: Hong Leong Investment Bank Research - 12 Jul 2018