MARKET REVIEW

Ahead of the crucial US-China trade negotiations today in Beijing (and next week in Washington), Asia’s market ended lower yesterday led by steep decline on the Nikkei 225 (- 1.6%) and Shanghai Composite Index (-0.92%) markets. The poor performance was mainly due to lingering fears of accelerating global economic slowdown and heightening fears of a possible US recession amid the persistent inversion of the US Treasury yield curve touching a 52-week low of 2.34% yesterday.

Tracking the edgy regional bourses, KLCI lost 1.4 pts to 1641.3 pts with trading volume decreased to 1.94bn shares worth RM1.66bn compared to Wednesday’s 2.07bn shares worth RM1.71bn. Market breadth was negative as losers 448 thumped gainers 338. Overall, sentiment was weighed by the BNM’s downgrade of Malaysia 2019 GDP forecast to 4.3% - 4.8% (2018: 4.7%) as the risk is skewed to the downside.

The Dow rose 92 pts to 25717 overnight, shaking off a final reading of a poorer 4Q18 GDP at 2.2% from 2.6% previously amid easing fears of a persistent inverted yield curve after 10Y bond yield closed higher at 2.39% (from 52W low of 2.34% yesterday). Sentiment was also boosted by purported progress in US-China trade negotiations that Chinese officials made unprecedented offers regarding force technology transfers as well as other major sticking points as the long-awaited Beijing’s talks begins today.

TECHNICAL OUTLOOK: KLCI

After peaking at YTD high at 1732.3 (22 Feb), KLCI has corrected 5.25% to close at 1641.3 yesterday. Although MACD continues to expand negatively below zero following the multiple key SMAs breakdown, KLCI is ripe for a technical rebound in the near term (from oversold stochastic and RSI levels) towards 1650/1665 (10D SMA)/1678 (downtrend line) levels, tracking the overnight bounce in the US markets and a potential end 1Q19 window dressing activities. Unless staging a strong breakout above 1678, the downward pressure from 1732 remains following the lower high and lower low formation. Lower supports are 1627 (52W low on 18 Dec 2018) and 1614 (14 Nov 2016).

In the short term, cautious sentiment would prevail as investors continue to digest on key headlines on possible US slips into recession and potential downside risks to our economy mainly from the unresolved trade tension, slower-than-expected global growth and uncertain monetary policy normalisation. Nevertheless, tracking overnight Dow’s rebound and a potential end 1Q19 window dressing activities, traders may selectively look out for bashed down banking stocks (such as CIMB/MAYBANK/PBBANK/ABMB) for technical rebound plays.

TECHNICAL OUTLOOK: DOW JONES

After peaking at YTD high of 26241 (25 Feb), the Dow fell 3.9% to a low of 25208 (11 Mar) before gradually trending up to end at 25716 overnight, comfortably above the 50D (25428) and 200D SMA (24188) supports. As the technical indicators are on the mend, we believe the index is going to retest the key downtrend resistance near 26000 and 26241 in the near term.

In the US, we believe the negative sentiment could persist with traders monitoring the situation of a persistent inverted yield curve which could heighten fears of a possible US recession. Nevertheless, Wall Street is likely to be supported above 200D SMA in the short term as investors take comfort from the recent Fed’s ultra-dovish stance. Beside, we believe the Trump administration would likely to quickly resolve the tariff issues with China to kick start the US economy prior to the Presidential election in Nov 2020.

Source: Hong Leong Investment Bank Research - 29 Mar 2019