MARKET REVIEW

Asian markets ended higher last Friday as investors cheered signs of progress in the ongoing US-China trade talks. The US and Chinese negotiators on Thursday wrapped up a first day of trade talks in more than two months as business groups expressed optimism the two sides might be able to ease a 15-month trade war and delay a US tariff hike scheduled for this week after Trump said “we had a very, very good negotiation with China”, while a White House official said the talks had gone “probably better-than-expected”.

Ahead of the widely anticipated Budget 2020 announcement, KLCI gained 5 pts to 1556.8 in line with higher regional markets amid trade optimism. Trading volume increased to 2.29bn shares valued at RM1.6bn as compared to Thursday’s 2.18bn shares worth RM1.52bn. Market breadth was positive with 539 gainers as compared to 308 losers.

The Dow surged as much as 517 pts to 27013 after the announcement of a partial or phase 1 trade deal between the US and China. However, the index cut the gains to 320 pts at 26816 (+0.9% WoW) late in the session as the deal was announced amid worries over the possibility of further flare-ups before the agreement is finalized. The agreement will take three to five weeks to finalise and President Donald Trump said Washington will suspend a tariff hike planned for Tuesday on USD250bn of Chinese goods.

TECHNICAL OUTLOOK: KLCI

After slipping below the crucial neckline support of 1572 (14 May low) on 3 Oct, KLCI tumbled to a low of 1548 (10 Oct) before staging a technical rebound to end at 1556 last Friday. The formation of small white candle coupled with the bottoming up indicators could signal more upside bias this week, supported by a mildly positive Budget 2020 and a strong 1.2% rally on Dow last Friday following the partial US-China trade deal. Immediate resistances are 1565 (SMA 10D) followed by the 1571 (support-turned-resistance) levels. A successful breakout above these levels will spur greater rally towards 1586 (SMA 30D) and 1595 (SMA 50D) zones. Key supports are 1545 (low BB) and 1530 levels.

Following the US-China “mini” trade deal and a mildly positive Budget 2020, sentiment on the local bourse is likely to turn more optimistic this week, with immediate KLCI resistances set at 1565-1571. However, the index should encounter stiff barriers near 1586-1600 zones amid earnings woes and unattractive valuations, exacerbated by still unresolved US-China trade disputes and domestic worries. Key supports are pegged at 1530-1545 territory.

TECHNICAL OUTLOOK: DOW JONES

The Dow has regained its upward trending mode following the rebound along the SMA200 zone last week. The MACD is on the verge to form a golden cross whilst both the RSI and Stochastic are hooking upward. Based on the technical readings, we anticipate that the Dow could trend higher towards the resistance along 27000/27400, while support is set around 26600/26400.

This week, the Dow may continue its upward momentum to revisit above 27000-27300 territory as Wall Street welcome a US-Chinese trade truce as a possible step toward breaking a 15- month-old tariff war deadlock. However, caution remains as there was little progress towards settling core disputes including technology that threaten global growth, which a final settlement might take years to negotiate. After the US-China trade talks last week, traders will be shifting their attention towards the upcoming US 3Q19 reporting season starting this week, which could trigger a cap for further rally as consensus is predicting the S&P 500 earnings to decline 4.8% YoY (from a flat performance in Q1 and Q2).

Source: Hong Leong Investment Bank Research - 14 Oct 2019