US Rate Cut Optimism to Boost Local Sentiment

The local market ended mixed on Thursday, as blue chips consolidated while rotational buying interest shifted to the healthcare sector which rose 2%, with focus on rubber glove stocks. The FBM KLCI closed up 1.43 points at 1,616.75, after moving between early low of 1,614.71 and high of 1,619.75, as gainers edged losers 586 to 558 on moderate turnover of 4.93bn shares worth RM3.79bn.

Resistance at 1,622/1,632; Supports at 1,593/1,569

Buoyant global markets due to recent weaker US economic data, which enhanced probability for interest rate cuts towards the year-end, should spillover to shore up local sentiment ahead

of the weekend. Immediate index resistance remains at the early June high of 1,622, with the

May high of 1,632 and 1,640 as tougher upside hurdles, while immediate supports are at 1,593 and 1,569, the respective 50-day and 100-day moving average levels.

Bargain Supermax & Top Glove

Supermax need breakout confirmation above the upper Bollinger band (97sen) to enhance upside momentum and aim for RM1.04/1.10 and RM1.20 ahead, while chart supports at 85sen/80sen limit downside risk. Meantime, Top Glove will need to overcome resistance from recent highs of RM1.25/1.31 to fuel further upside towards RM1.40/1.52 and RM1.65 going forward, with key chart supports at RM1.00 and 90sen cushioning downside.

Asian Markets Hit 27-Month Highs on Rate-Cut Optimism

Stocks in Asia hit 27-month highs on Thursday as weaker than expected U.S economic data supported the case for Federal Reserve rate cuts. ADP data showed less private payroll growth than expected in June, while weekly jobless claims numbers came in higher than economists forecast. Minutes from the Fed’s June policy meeting showed officials were awaiting evidence that inflation is cooling and were divided on how long to keep rates elevated. Swap traders projected almost two rate cuts in 2024, with the first in November and bets on a September reduction increased. On economic front, S&P Global reported that Hong Kong’s composite purchasing managers’ index fell to 48.2 in June, down from 49.2 in the previous month.

Attention now turns to the closely watched nonfarm payrolls report due on late Friday, which is expected to show an increase of 190,000 jobs in June after rising 272,000 in May, according to a Reuter’s poll of economists. The Nikkei 225 rose 0.82% to close at 40913.65, surpassing an all-time high of 40,888.43, set in March this year. The Topix also rose 0.92% to close at 2898.47, crossing its previous all-time high of 2,886.50, set in December 1989. Australia’s S&P/ASX 200 also jumped 1.19% at 7,831.80 and South Korea’s Kospi added 1.11% to 2,824.94. Hong Kong’s Hang Seng index rose 0.28% to 18,028.28, while the Shanghai Composite Index bucked the regional trend and fell 0.83% to 2,957.57.

European Markets End Higher Ahead of UK, French Elections

Major European markets edged higher overnight as key elections draws focus in the region and traders grew more optimistic about Federal Reserve interest-rate cuts following US economic data that supported the case for easing. The pan-European STOXX 600 Index rose 0.56% to 517.54. Germany's DAX gained 0.41% to finish at 18,450.48, while the FTSE in London added 0.86% to close at 8,241.26 and the CAC 40 in France gained 0.83% to 7,695.78. U.S. markets are closed in observance of the Independence Day holiday. In the political sphere, voting began across polling stations in the U.K., with polls predicting a historic win for the Labor party and potentially ending 14 years of Conservative Party rule. Across the English Channel from Britain, polls in France suggested National Rally would not win a majority of seats in Sunday's second round of Parliamentary election as mainstream parties moved to block the far right.

Back on the U.S. rates front, minutes from the Fed’s June policy meeting showed officials were awaiting evidence that inflation is cooling and were divided on how long to keep borrowing costs elevated. Friday’s US jobs report will provide the next piece of major data as investors assess the path for rates. On the economic front, traders shrugged off data that showed German factory orders logged an unexpected decline in May due to the decrease in foreign demand. French banks BNP Paribas, Credit Agricole and Societe Generale rallied ahead of a French government bond sale.

Source: TA Research - 5 Jul 2024