MARKET REVIEW

Despite the strong overnight gains on Wall Street, which led by tech giants (Apple and Facebook), Asia’s key benchmark indices were traded mildly higher, threading along the negative and positive territories as investors were reassessing the consequences of a more dovish-than-expected stance from the Federal Reserve after the FOMC meeting. The Nikkei 225 and Shanghai Composite Index rose 0.09% each, while Hang Seng Index inched higher by 0.14%.

Meanwhile, the FBM KLCI rebounded and closed higher by 0.18% to 1,666.66 pts, tracking the Wall Street overnight gains. Market breath, however was negative with 470 decliners vs. 377 gainers. Meanwhile, overall traded volumes stood at 2.75bn, worth RM2.13bn. We observed selected banking heavyweights were under pressure throughout the session, while REITs sector were the one of the top performers on the broader market as investors were speculating that BNM may cut the OPR moving forward.

Wall Street ended in the negative region after the strong rebound on Thursday on the back weaker forecast on the global growth by the Fed, which causes the yield spread to decline (a decline below zero trigger could be a signal of recession moving forward) and led to the emergence of selling pressure in banking heavyweights. The Dow and S&P500 dived 1.77% and 1.90%, respectively, while Nasdaq fell 2.20%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI has rebounded of the support around 1,657 forming a hammer candle. However, the MACD Indicator is trending lower below zero for both the MACD Line and Histogram. Also, the RSI and Stochastic oscillators are hovering below 50. With the negative technical readings, the FBM KLCI could trend lower in the near term. The resistance will be envisaged around 1,680-1,700, while support will be pegged around 1,650, followed by 1,630.

Under the cautious environment overseas and regionally, we anticipate the key index to trade on a softer tone moving forward as selling activities could assert pressure on banking heavyweights under the speculation of an OPR cut by the BNM in the future; the FBM KLCI is likely to trend below the stiff resistance zone of 1,680-1,700. However, in this scenario REITs will be a favourable sector to invest.

TECHNICAL OUTLOOK: DOW JONES

The Dow has been experiencing several round of selling pressure near the 26,000-26,343 zones, and the MACD Histogram has turned lower on Friday. The RSI and Stochastic oscillators are hooking downwards. We expect the downward bias tone on the Dow to persist over the near term towards the 25,000-25,200 levels, while the resistance is pegged around 26,000-26,343.

On Wall Street, we expect the downward bias to persist with the unsettled trade disputes between the US and China as well as the softer forecast by most of the central bankers globally. Also, the reduction of interest rate frequency from two to zero after the recent FOMC meeting could be interpreted by the investors that the economic activities might be softer in the future, which could led to a slowdown on Wall Street. The Dow’s upside is likely to be seen near the stiff resistance around 26,000-26,343.

Source: Hong Leong Investment Bank Research - 25 March 2019