MARKET REVIEW

Despite Wall Street trending in a positive note overnight, investors were on the side lines digesting the official midpoint reference for the yuan at 6.9996 per dollar, which was slightly weaker than market expectations. The yuan continues to trade above 7 against the Greenback as trade tensions persisted throughout the Asian trading hours; the Nikkei and Shanghai Composite Index closed lower by 0.33% and 0.32%, respectively, but Hang Seng Index rose marginally by 0.08%.

Meanwhile, stocks on Bursa mostly traded in the negative territory and the FBM KLCI trended lower led by Genting related stocks. Market breadth was negative with losers by a ratio of 5-to- 3, accompanied by 2.57bn of shares traded for the day, valued at RM2.55bn. Nevertheless, selected O&G counters such as KNM and Armada traded actively higher for the day.

Wall Street traded in the negative territory after the opening bell as investors were rushing for government bonds and the 10-Year Treasury Yield has fallen to a low of 1.595%, before stabilizing around 1.709% as market participants were looking for safe haven assets. However, as soon as the Dow hit near a 600-pt drop, bargain hunting activities emerged and recouped most of the losses on the broader market. The Dow (-0.09%) and S&P500 (+0.08%) ended flat, while Nasdaq added 0.38%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI pulled back mildly after the strong rebound few days back and the MACD indicator expanded negatively below zero. The RSI and Stochastic oscillators are hovering within the oversold position; hence the FBM KLCI could be due for a technical rebound. However, the upside resistance is set around 1,621-1,640, while support is anchored around 1,600, followed by 1,580.

Taking cues from the strong overnight rebound on Wall Street, we expect the spill over buying interest may surface on stocks on the local exchange. However, we believe the rebound move may be limited amid the uncertain developments on the trade war between the US and China, in turn capping the upside move on KLCI. The KLCI’s resistance is located around 1,621- 1,640.

TECHNICAL OUTLOOK: DOW JONES

The Dow has retested the SMA200 for the second time and market is respecting this level at least for now. The MACD Line is below zero, but both the RSI and Stochastic oscillators are recovering within the oversold position. Hence, with the strong overnight recovery movement, forming a hammer candle along SMA200, we anticipate the Dow to revisit the near term resistance along 26,300-26,500, while support is anchored around SMA200 (25,500).

On Wall Street, follow through buying interest is likely to follow suit on the back of the strong rebound. In the meantime, as the trade discussion is set to resume in September, market participants will still be monitoring closely on the news headlines on the trade war as it may generate huge market volatility in the near term. Currently, we expect short-term upward bias move on the Dow to revisit resistance along 26,300-26,500.

Source: Hong Leong Investment Bank Research - 8 Aug 2019