MARKET REVIEW

Bucking overnight 0.93% gains on the Dow, MSCI Asia Apex 50 slid 1.1% amid fragile global geopolitical and economic outlook, and uncertainties over the US-China trade dispute. Meanwhile, buying was further in check after the Fed’s meeting minutes suggested that the recent rate adjustment in July was a recalibration of current policy and not a signal of a major round of rate cut.

After sliding 5.9% from 3M high of 1694.6 (2 Jul) to a low of 1594.2 (15 Aug), KLCI jumped 7.9 pts to 1602.7 on technical rebound, led by banking, telco and plantation heavyweights such as AMMB, RHBBANK, MAYBANK, HAPSENG, IOICORP and MAXIS. Trading volume increased to 2.04bn shares worth RM1.75bn as compared to Wednesday’s 2.0bn shares worth RM1.62bn. Market breadth was negative with 382 gainers as compared to 401 losers.

The Dow ended modestly higher by 50 pts to 26252 after oscillating between gains and losses, as a fall in US jobless claims offset IHS Markit’s Flash Purchasing Managers’ Index data showing a contraction in US manufacturing activity (the 1st time in nearly 10 years), while investors awaited Fed’s chief Powell’s speech tonight at an annual gathering of central bankers in Jackson Hole to yield some clues on whether the Fed will cut interest rates further.

TECHNICAL OUTLOOK: KLCI

After sliding 6.7% from 3M high of 1694.6 (2 Jul) to a low of 1581.3 (15 Aug), KLCI is firming up to end a tad higher above 1600 psychological level at 1602.5. With RSI and stochastic indicators ticking up coupled with the potential formation of MACD golden cross, the index is expected to grind higher to retest 1618 (61.8% FR), followed by stronger hurdle at 1632 (50% FR) zones in the short term. Conversely, failure to defend the 1600 levels could reignite an extended sideways consolidation to retest 1581.3 and 52W low at 1572 (14 May).

Given the lingering external headwinds such as heightened US-China trade tension, rising geopolitical tensions coupled with ongoing tepid Aug reporting season, KLCI is expected to trend range bound within 1580-1620 band in the short term. Meanwhile, local sentiment would also be dampened by key concerns e.g. awaiting the outcome from the review on Malaysia’s position in the World Government Bond Index (WGBI) in early Sep.

TECHNICAL OUTLOOK: DOW JONES

The Dow fluctuated within 26099 (-103 pts) and 26388 (+186 pts) before ending 50 pts higher at 26252, supported by a golden cross in MACD and bottoming up momentum oscillators. As Dow is firming up above the SMA200 support near 25600, Dow is envisaged to inch higher towards 26370 (50% FR) and 26600 (61.8% FR) resistance targets, while supports will be pegged around 26000 and 25600.

All eyes are focusing on Jerome Powell’s speech later today at a yearly central banking symposium in Jackson Hole. The stakes are high for Powell as investors will look for hints that the Fed will cut rates in Sep (93.5%, according to FedWatch pool), with President Trump continues attacking the US central bank, pressuring it to lower rates. To recap, the Fed cut rates by 25 basis points in July, citing “global developments” and “muted inflation.” Besides, market participants are awaiting further developments on trade war between US and China in the upcoming discussion that will be resuming by September, should it provide some optimism in crafting some trade deals, we may anticipate further upward momentum on Wall Street.

CLOSED POSITION

We took profit on PECCA (11.3% return) yesterday after hitting RM1.28 (R2).

Source: Hong Leong Investment Bank Research - 23 Aug 2019