MARKET REVIEW

Asia’s stock markets ended positively as investors digested comments from New York Federal Reserve President John Williams, stating that the central bank will need to “act quickly” when the economy was slowing and rates were low, which increases the expectations that the central bank may ease monetary policy more-than-expected in the upcoming meeting. The Nikkei 225 jumped 2.00%, while Hang Seng Index and Shanghai Composite Index added 1.07% and 0.79%, respectively.

Meanwhile, stocks on the local front traded mostly higher; the FBM KLCI rose 0.56% to 1,658.19 pts and market breadth was positive with advancers led decliners by a ratio of 5-to-3. Market traded volumes stood at 2.50bn, valued at RM1.61bn. In addition, selected technology related stocks such as Frontken, Dufu, Heitech Padu and Excel Force traded actively higher.

Wall Street traded higher briefly after the opening bell and profit taking activities emerged after a spokesperson for the New York Fed cooled down the speculation arising from John William’s comments. Also, traders were taking a cautious approach in the midst of the US reporting season, where most of the outlook guidance from corporates was shaken by the ongoing trade uncertainties. The Nasdaq and S&P500 lost 0.74% and 0.62%, respectively, while the Dow slipped 0.25%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI snapped a 3-day losing streak and formed a bullish engulfing bar. The MACD indicator however is mixed (MACD Line is declining, while MACD Histogram is recovering). Also, both the momentum oscillators are mixed, where RSI is below 50 and Stochastic oscillator is oversold. Given the mixed technical readings, we believe the technical rebound on KLCI may be limited over the near term. Resistance is pegged around 1,680, while support is located around 1,666.

With the mixed technical readings, we expect the technical rebound on KLCI to be limited, despite the pickup in foreign trade participation last week. In addition, with one of the Fed officials toning down the speculation of deeper interest rate cut, trading sentiment are likely to be neutral today. The KLCI may trend within a range between 1,666-1,680.

TECHNICAL OUTLOOK: DOW JONES

The Dow has pulled back again from its all-time-high of 27,399 level last week. The MACD indicator is suggesting that the trend is turning sideways, while both the RSI and Stochastic oscillators are declining from its overbought region earlier last week. Hence, with the toppish technical indicators, we opine that the Dow may have limited upside potential at this juncture, with the resistance envisaged around 27,400-27,500. The support will be anchored around 27,000, followed by 26,500.

With the uncertain comments from the Fed’s officials, which changes the interest rates outlook expectations, traders may deploy a defensive and cautious approach ahead of the FOMC meeting (30-31 July). In the meantime, investors will be monitoring few key events this week such as ECB monetary policy statement and the US 2Q GDP data that will be released this Thursday and Friday, respectively.

Source: Hong Leong Investment Bank Research - 22 Jul 2019