MARKET REVIEW

Asian stocks were mixed on Wednesday ahead of a policy decision by the US Federal Reserve at 2am this morning. Sentiment was also dampened by falling energy stocks in Greater China and Australia following overnight in oil prices and awaiting further policies from China to “reset growth and reform objectives” in the China Central Economic Work Conference (CEWC) on 19-21 Dec meeting amid ongoing tariff fight with the US (now on hold until March).

After sliding 20.3 pts on Tuesday, KLCI staged a 20.4-pt technical rebound to 1655.7, lifted by buying interest in selected heavy weights counters ahead of the traditional year-end window dressing activities. Ahead of the widely focused FOMC meeting outcome, trading volume decreased to 1.87bn worth RM1.89bn as compared to Tuesday’s 2.27bn shares worth RM1.91bn while market breadth was positive with 502 gainers as compared to 322 losers.

The Dow tumbled 1.5% or 352 pts at 23323 after trading between 895 pts intraday. Earlier, the index rallied as much as 382 pts after Steven Mnuchin gave investors reasons for optimism when he said the US and China will meet in January to broker a trade-war truce and awaiting a more dovish statement from Fed. However, the index started to slide post Fed meeting (raised 0.25% rate hike as expected) after the forecasting of fewer interest-rate increases in 2019 (two times now against three previously) fell short of investors’ hopes of a more dovish monetary policy.

TECHNICAL OUTLOOK: KLCI

The 20.4-pt rally yesterday has improved overall KLCI technical outlook, supported by mild hook up in technical readings, with upside targeting 1661/1685/1700. However, further rebound beyond 1700 is likely to be capped by bearish undertone from Dow. We expect volatility to prevail despite potential supports from the traditional window dressing period. Key supports are 1626 (18 Dec low) and 1600 psychological levels.

On the local front, sentiment is likely to remain tepid as local and external headwinds should continue to buffet domestic equities. Rising US-China trade turmoil and a slowing global economy, coupled with subdued commodity prices that exacerbate Malaysia’s persistent weak fiscal profile and the weakening corporate earnings are main drags. Major supports are set at 1600-1626 whilst resistances are near 1665-1678.

TECHNICAL OUTLOOK: DOW JONES

Following the breakdown below previous 52W low of 23345 overnight to a fresh low of 23169, near term technical outlook remains weak as the MACD Histogram continues to expand negatively below zero. Unless the Dow can reclaim above the 24000 psychological barrier, the index is likely to test 23000 over the near term, before staging a meaningful rebound, given the cautious trading sentiment and lack of strong technical positivity signs. Stiff resistances are 24000-24500 territory.

In the US, recent market skittishness was largely attributed to concerns over sluggish global economic expansion, escalating US-China trade tensions and growing worries that the Fed's plan to raise interest rates despite escalating headwinds. Overall, Wall Street is expected to experience extended bouts of volatility as the Fed delivered a less dovish outlook overnight.

Source: Hong Leong Investment Bank Research - 20 Dec 2018