MARKET REVIEW

Tracking the overnight 1.2% fall on Dow, Asian bourses slid in the early sessions as concerns over flagging global economic growth (after IMF lowered its global growth forecast and China’s 2018 GDP grew at 6.6%, the slowest rate in 29 years) and the unresolved US-China trade war tensions after reports emerged that the White House cancelled a trade planning meeting with Beijing for end Jan (which was denied by the White House economic advisor Larry Kudlow). However, regional markets pared early losses to end mixed as Beijing pledged higher fiscal expenditure in 2019 to bolster the cooling economy.

In tandem with lower regional markets and oil prices, KLCI tumbled as much as 21 pts intraday to 1680.8 before narrowing the losses to 14 pts at 1688.1, led by losses in PBBANK, PMETAL, GENTING, CIMB and TENAGA. Trading volume decreased to 2.07bn shares worth RM1.92bn as compared to Tuesday’s 3.32bn shares worth RM2.12bn while market breadth was negative with 325 gainers as compared to 468 losers.

The Dow rebounded 171 pts to 24575 overnight after sliding 302 pts on Tuesday amid strong quarterly earnings from companies like IBM, United Technologies and P&G, offset worries of gloomy global economic growth outlook and US-China trade negotiations, coupled with the prolonged US partial government shutdown (entering 34th sessions). White House Council of Economic Advisers Chairman Kevin Hassett said that if the partial government shutdown extends through March, there’s a chance of zero economic expansion in 1Q19, though “humongous” growth would follow once federal agencies reopen.

TECHNICAL OUTLOOK: KLCI

Following the late buying on Tuesday in selected core index heavyweights lifted the KLCI to gain 9.9 pts and closed above the 1700 psychological levels, strong profit taking triggered fresh selloff to push the index 14pts lower at 1688.1. Despite the sharp fall yesterday, overall technical readings remain resilient, given the benchmark index continues to close above the support trendline (at 1676) and 50d SMA (at 1681). As long as these levels are not breached in the short term, KLCI could still retest higher resistances at 1700 to 1722 (100d SMA) levels in the mid to long term. Key supports are pegged around 1676 and 1662 (lower Bollinger band).

On the back of the negative external headwinds and recent Wall Street gyrations coupled with the renewed softening undertone in Ringgit and oil prices, we opine that the broader market especially the small cap and lower liners may take a pause over the near term as traders could reduce their exposure ahead of long Chinese New Year break and reporting season in early February.

TECHNICAL OUTLOOK: DOW JONES

Despite overnight 171-pt technical rebound, the Dow continued to trend below the critical 200D SMA levels near 24972. The MACD histogram is moderating and the Stochastic oscillator is hovering in overbought zones while RSI remains neutral. Hence, we believe the recent V shape rebound will be taking a pause and could retrace back below the 24000 psychological level if the immediate support near 23968 (14d SMA) is violated decisively.

As the unabating lists of headwinds permeate, the Dow is expected to trap in range bound consolidation in view of the ongoing reporting season and partial US government shutdown coupled with the continuing US-China trade deal talks before the March deadline. Besides, IMF’s move to cuts its global forecast and growing frustrations by CEOs gathered at the World Economic Forum in Davos on Trump policies amid fears that unresolved trade war with China will dampen the global economy and business investments even further.

Source: Hong Leong Investment Bank Research - 24 Jan 2019