MARKET REVIEW

Asia’s stock markets ended lower after US President Trump announced fresh tariffs on all Mexican products starting from 10 June, coupled with softer China’s manufacturing data stood at 49.4 as compared to consensus of 49.9. Shanghai Composite Index and Hang Seng Index fell 0.24% and 0.79%, respectively, while Nikkei 225 declined 1.63%.

Meanwhile, stocks on the local front managed to buck the regional trend to end higher led by decent foreign inflow (5-day total foreign inflow stood at RM49m) and the KLCI further rebounded 0.87% to 1,650.76 pts on Friday. Market breadth, however was negative with 464 losers vs. 395 gainers. Market volumes stood at 2.23bn worth RM2.56bn. Nevertheless, selected construction stocks such as Econpile and Gadang were traded actively higher.

With President Trump threatened fresh tariffs on Mexican products as well as the inversion of yield curve (3-month vs. 10-year bond yield), further selling pressure was seen on Wall Street as market participants worried that the escalating trade tension could be a risk towards a potential global economic slowdown moving forward. The Dow and S&P500 1.41% and 1.32%, respectively, while Nasdaq lost 1.51%.

TECHNICAL OUTLOOK: KLCI

The KLCI has rebounded over the past three week, surpassing strongly above the 1,600 psychological level. Also, the MACD Line has recovered and it is nearing zero. However, both the RSI and Stochastic are hovering in the overbought region. With the mixed technical readings KLCI, we believe the upside could be limited. The resistance is located around 1,658- 1,666, while support will be set along 1,620-1,630.

Tracking the negative performance on Wall Street, we opine that the profit taking activities are likely to emerge on the local front as KLCI is slightly overbought after rebounding near to 80 points over the past 3 weeks. The KLCI’s trading range will be located around 1,620-1,666. Meanwhile, traders may look into export-oriented stocks on the back of weaker ringgit (RM4.19/USD).

TECHNICAL OUTLOOK: DOW JONES

The Dow has fallen below the SMA200 and the 25,000 psychological level. The MACD indicator is pointing downwards, while both the RSI and Stochastic oscillators are trending lower. We opine that the Dow could further retrace towards next level of support around 24,000-24,300, while resistance will be set around 25,500-26,000.

In the US, we believe the recent trade-related headlines regarding the imposition of fresh tariffs on Mexican products will pose downside pressure towards the stock markets. Also, market participants are concerned that the President Trump could further target other trading partners in order to strike several trade agreements, which may lead to a slowdown in economic activities in the future. The Dow’s resistance is located around 25,500.

Source: Hong Leong Investment Bank Research - 3 Jun 2019