Further Correction on High Inflation Fears

Sustained profit-taking on healthcare, plantation and property counters dragged the blue-chip index lower on Wednesday, mirroring regional weakness as Australia’s higher-then-expected consumer prices reignite inflation fears. The FBM KLCI shed 10.47 points to end at the day’s low of 1,605.35, off an opening high of 1,614.71, as losers swarmed gainers 835 to 401 on moderating trade totalling 4.74bn shares worth RM3.69bn.

Resistance at 1,640/1,660; Supports at 1,600/1,595

Stocks should extend profit-taking correction amid worries stubbornly high inflation across the region could delay any notion for interest rate cuts this year. Immediate index resistance stays at 1,640, with 1,660 and then 1,680 as tougher upside hurdles ahead. Immediate uptrend support remains at 1,600, with 1,595, 1,579 and 1,548, the respective rising 30-day, 50-day and 100-day moving averages, acting as stronger supports.

Bargain Velesto & Wasco

Velesto will need a decisive breakout above the 31.5sen high (28/2/24) to fuel further upside momentum and aim for the 123.6%FP (37sen) and 138.2%FP (40sen) ahead, while the 200-day ma (25sen), matching the 76.4%FR, cushions downside risk. Wasco needs sustained strength above the 138.2%FP (RM1.61) to extend uptrend and target the 150%FP (RM1.70) and 161.8%FP (RM1.79) going forward, with uptrend support from the rising 50-day ma (RM1.38) and 100-day ma (RM1.27) cushioning downside.

Rate Worries Weigh on Asian Markets

Asian markets fell sharply on Wednesday as traders assessed economic data and remarks from Federal Reserve speakers for clues on the policy outlook. Traders were caught off-guard by a sharp improvement in a U.S. consumer confidence measure for May after deteriorating early in the month. That has kept the market guessing about the strength of the economy and sticky inflationary pressures, which in turn cloud the outlook for the Fed's policy path. Separately, Minneapolis Federal Reserve President Neel Kashkari said he wants to see “many more months” of data pointing to easing inflation before cutting rates and would not rule out further rate hikes if price pressures tick up again.

On economic front, Australia’s consumer price index rose 3.6% year-on-year in April, greater than the 3.4% gain forecast in a Reuter’s poll. The reading was also higher than the 3.5% reported for March. Australia’s the S&P/ASX 200 dropped 1.30% to 7,665.60, while South Korea’s Kospi fell 1.67% to 2,677.30. Japan’s Nikkei 225 also dipped 0.77% to end at 38,556.87 and the broad-based Topix lost 0.97% to 2,768.50. The Shanghai Composite Index closed nearly unchanged at 3,111.02, while Hong Kong’s Hang Seng index dropped 1.83% to 18,477.01.

Wall Street Slide on Higher Bond Yields

Wall Street’s main indexes ended lower overnight as further gains in Treasury yields raised concern over the timing and scale of possible interest rate cuts from the Federal Reserve. The Dow Jones Industrial Average fell 1.06% to 38,441.54. The S&P 500 dipped 0.74% to 5,266.95, while the Nasdaq Composite slipped 0.58% to 16,920.58. The weakness on Wall Street came amid a continued increase by Treasury yields, with the 10- and 30-year Treasury rates finished at their highest levels in about a month, as long-dated government debt sold off for a second straight day on a trio of poorly received auctions. The continued advance in Treasury yields has added to recent concerns about the outlook for interest rates ahead of key inflation data later in the week.

Those concerns appeared to be eclipsing the hopes for AI growth that lifted the Nasdaq to a record in the slipstream of Nvidia's post-earnings rally. Nvidia stock rose for a fourth straight day to close at a record high. In all, 27 of the 30 stocks in the Dow fell. Insurance provider UnitedHealth led the blue-chip average lower with a slide of more than 3% following management commentary around its Medicaid business. All 11 sectors that comprise the broad S&P 500 retreated, underscoring the breadth of market weakness. More than 440 stocks in the index were lower on the day.

Source: TA Research - 30 May 2024