MARKET REVIEW

Asia’s stock markets were mostly lower following the geopolitical tensions, where drones attacked major oil production facilities in Saudi Arabia over the weekend; this translated to a crude oil rally on Monday. Meanwhile China’s industrial production grew at 4.4% in August (slowest in 17.5 years). Hang Seng Index declined 0.83%, while Shanghai Composite Index fell marginally by 0.02% and Japan was closed for a public holiday. Local stock exchange was closed on Monday for Malaysia Day public holiday.

Last Friday, the FBM KLCI traded marginally higher by 0.02% to 1,601.25 pts. Market breadth was positive with 450 gainers compared to 324 losers for the session. Market traded volume stood at 2.10bn, worth RM1.50bn. Also, we noticed selected O&G stocks under the maintenance segment such as Penergy and Carimin traded higher.

Wall Street ended lower for the session as investors were fearful that the spike in crude oil prices following an attack on Saudi Arabia’s oil production facilities may slowdown global economic growth. In addition, market sentiment was negative as market digested the weaker China’s industrial production data. The Dow and S&P500 declined 0.52% and 0.31%, respectively, while Nasdaq fell 0.28%.

TECHNICAL OUTLOOK: KLCI

The FBM KLCI has remained in the sideways consolidation phase for more than a month. The MACD indicator is recovering, but at a softer pace and MACD Line is still below zero. Meanwhile, both the RSI and Stochastic oscillators are still fluctuating around the 50 level. As the technicals are mixed, we believe the KLCI may extend its consolidation phase over the near term. Resistance will be set around 1,620, while support is located around 1,572-1,580.

With the drones attack on Saudi’s oil production facilities over the weekend, which caused the oil spiked yesterday, we anticipate trading tone to turn negative on broader market. However, selected segment under the O&G sector like E&P may expect higher trading interest for the near term. Still, the KLCI may trend within the range of 1,580-1,620.

TECHNICAL OUTLOOK: DOW JONES

After hitting the resistance zone around the 27,400 level last week, the Dow has entered a potential pullback phase. The MACD indicator is still positive, but the RSI and Stochastic oscillators are turning down, indicating that the Dow’s momentum is slowing down. With the overbought Stochastic, we expect the upside will be limited. Resistance is pegged along 27,400, while support is envisaged around 26,800.

Given the rise in geopolitical tension amid the protracted trade war environment, we opine that the performance on Wall Street may turn slightly negative after a good run on the Dow in the past weeks. Also, investors will focus mainly on energy sector for the time being as the crude oil rally may sustain for a while until the damaged production facilities is restarted in Saudi Arabia. In the meantime, traders will monitor the outcome of the FOMC meeting this week.

Source: Hong Leong Investment Bank Research - 17 Sept 2019