CORRECTION LIKELY TO CONTINUE

STEEL-RELATED stocks led falls last week on United States President Donald Trump’s proposed heavy tariffs of 25 per cent on steel and 10 per cent on aluminium imports, which raised concerns it will spark reprisals and fuel a global trade conflict.

The resignation of Trump’s top economic adviser Gary Cohn, long regarded as a top free trade advocate, reignited worries about more protectionist measures. However, fears receded into the weekend after details emerged that the US import tariffs will exclude major trading partners.

Last week, the FTSE Bursa Malaysia KLCI (FBM KLCI) slipped 0.65 per cent to 1,843.92, as losses on Petronas Dagangan (-RM1.02), Hong Leong Bank (-RM1), HLFG (-52 sen) and Press Metal (-50 sen) offset gains on Nestle (+RM19.10), Maxis (+11 sen) and Axiata (+10 sen).

Average daily traded volume moderated to 2.59 billion shares worth RM2.51 billion, compared with 2.87 billion shares worth RM2.84 billion in the previous week.

In the immediate term, local and regional markets could react positively to US non-farm payroll report that has showed average hourly earnings growth narrowed to 2.6 per cent year-on-year (y-oy) in February although jobs increased 313,000 versus the forecast 200,000.

December and January numbers also saw some upward adjustments. The unemployment rate stayed at 4.1 per cent as the labour participation rate rose 0.3 percentage points to 63 per cent from a month ago. This could blunt worries about rising inflation and a tighter monetary policy.

However, the worries will not fade away this year as the US labour participation rate is already hovering around long-term average and Trump’s fiscal measures should sustain tightening in the labour market and higher inflation as wages rise.

Thus, equity market volatility is here to stay and should continue to exert downside pressure on the local market due to net outflow of foreign funds (foreign ownership in our listed companies is not low at an estimated 23 per cent).

Foreigners turned net sellers in February (-RM1.2 billion) after a net inflow of RM3.3 billion in January. Month-to-date data for March showed they remained net sellers and the exit could intensify as the month progresses due to expectations for the Malaysian parliament to be dissolved soon.

Exports for the month surpassed expectations with strong growth of 17.9 per cent y-o-y versus an estimate of 12.9 -per cent y-o-y. The manufacturing grew at a hefty rate of 20.4 per cent and this should be reflective in the industrial production index and manufacturing sales.

Technical Outlook

Bursa Malaysia shares slumped on Monday, trailing regional losses with steel-related counters leading falls on fears Trump’s tariff threat on steel and aluminium imports will trigger a global trade war.

The index fell 13.45 points to close at 1,842.62, off an opening high of 1,853.76 and a low of 1,840.04, as losers swamped gainers 963 to 172 on total turnover of 2.62 billion shares worth RM2.4 billion.

The market rebounded the next day, as worries over a potential trade war eased after the US president backtracked on his steel tariff proposal.

The FBM KLCI gained 5.75 points to close at 1,848.37 as gainers edged losers 529 to 438 on total turnover of 2.76 billion shares worth RM2.78 billion.

Stocks slumped again on Wednesday on negative sentiment following Cohn’s resignation.

The benchmark index slid 10.47 points to close at 1,837.90 as losers trashed gainers 991 to 163 on higher turnover of 3.11 billion shares worth RM3.17 billion.

Blue chips recovered mildly the subsequent day, as concerns over global trade restrictions eased on hints the US import tariffs on steel and aluminium may exclude major trading partners.

The FBM KLCI gained 1.72 points to settle at 1,839.62 as gainers edged losers 475 to 431 on reduced turnover of 2.22 billion shares worth RM2.05 billion.

Bursa Malaysia stayed range bound on Friday as concerns over rising global trade barriers continued to dampen sentiment.

The index added 4.3 points to end the week at 1,843.92 as gainers edged losers 491 to 459 on moderate trade totalling 2.25 billion shares worth RM2.01 billion.

Trading range for the blue-chip index was 19.09 points, compared with 20.84 points previously.

For the week, the FBM EMAS Index lost 1.56 per cent to 12,968.94, while the FBM Small Cap Index slumped 3.57 per cent to 15,846.57, with profit-taking and selling pressure depressing shares of the small cap sector.

Given the selling pressure in the past two weeks, the daily slow stochastic momentum indicator for the FBM KLCI is beginning to dip into the oversold zone, while a sell signal on the weekly indicator has been triggered in overbought territory.

The 14-day Relative Strength Index (RSI) declined to a weaker reading of 50.18 as of last Friday, while the 14-week RSI fell to a reading of 61.49.

The daily Moving Average Convergence Divergence (MACD) trend indicator’s signal line also turned weaker, while the weekly MACD indicator’s uptrend signal is easing visibly.

The +DI and –DI lines on the 14day Directional Movement Index have crossed for sell on a falling ADX line, suggesting deterioration of trend.

Conclusion

The local market is likely to extend consolidation due to weak buying momentum and market breadth, and substantial selling and profit-taking resistance.

On the other hand, strong rallies on Wall Street last Friday sparked by the US jobs gains and tame wage growth, should spill over to lift both regional and local markets this week.

Immediate support for the index remains at the 50-day moving average now at 1,833, followed by the lower Bollinger band at 1,822, while stronger support is at 1,800.

Crucial resistance-turn-support is at 1,796, the June last year peak matching the February 6 pivot low. Immediate resistance will be the overhead 10-day moving average at 1,851, followed by recent high of 1,872, with tough hurdle expected from the February 2 peak of 1,880.

Strong rallies on Wall Street last Friday sparked by the US jobs gains and tame wage growth, should spill over to lift both regional and local markets this week

The subject expressed above is based purely on technical analysis and opinions of the writer. It is not a solicitation to buy or sell.