REVIEW: It can be reasonably concluded that the current round of US-China trade negotiations has all but crumbled following recent developments.
At the time of writing, China’s vice-premier Liu He’s attempt to salvage and renegotiate a deal in Washington has yielded very little, given the increase of US tariffs on US$200bil of Chinese goods as at 12pm yesterday.
China has promised retaliation. Should things continue moving in this direction, fresh tariffs on a further US$325bil of Chinese goods are in the works.
In place of smiles, both parties have bared their teeth and a further continuation of the trade conflict that has roiled markets for nearly a year looks likely.
Investors attempted to wrap their heads around early Monday news that the US was once again threatening tariffs in an attempt to menace Beijing back to the original agreement.
The US had ended the previous week looking rosy as healthy unemployment data lifted sentiment over the economy. However, US President Donald Trump’s Twitter comment on Sunday that he would raise trade tariffs following China’s changes to a draft agreement put the kibosh on investor hopes that the trade war was nearing its end.
After the initial shock, there was denial coupled with a healthy dose of incredulity, which led to Wall Street paring losses in its Monday trading session after an early-session plunge.
But by the Tuesday session, it was confirmed by White House officials that US President Donald Trump’s tweet was serious, triggering a rout in the US equity market.
In Asia, Chinese bellwhethers Shanghai Composite Index and CSI300 Index ended their Monday session nearly 6% lower each while Hong Kong’s Hang Seng Index plunged over 3%.
The Chinese yuan fell sharply. Oil prices began a slide on worries that demand would be negatively impacted, although Brent ended the week over the US$70 a barrel mark.
On Monday, the FBM KLCI followed suit into the red, losing 4.5 points to 1,632.80 by market close.
Investor interest, however, was generated by news that market heavyweights Axiata and Digi were set to merge their operations. With both counters being suspended for trading on Monday, the gains were delayed to Tuesday as a flurry of buying in the stocks lifted the FBM KLCI .
Coupled with the relief rebound taking place in the region, the index rose a notable 6.57 points to 1,639.37, proving as yet unable to breach the resistance of 1,640.
That same day, Bank Negara announced its decision to cut its overnight policy rate (OPR) by 25 basis points to 3%. Seen as negative to bank margins, the rate cut put some downwards pressure on the sector.
While the OPR cut had been factored in by the market, the compounded effect of the trade war weighed on the ringgit. By yesterday’s close, the currency had weakened to 4.15.
On Wednesday, global markets tracked the fallout in the US market, and the FBM KLCI slid 5.82 points to 1,633.55.
This would solidify the renewed downtrend as the index chalked up consecutive losses over the ensuing two session. On Thursday, the FBM KLCI slid below the 1,626 support in early trade and ended the day 15.02 points lower to 1,618.53.
Yesterday, Asian markets mostly rebounded after several days of losses but the FBM KLCI continued its rout. It lost 8.26 points to 1,610.27.
Statistics: The major index ended the week 27.03 points, or 1.7%, lower over the previous week, at 1,610.27. Total turnover for the trading week stood at 12.71 billion shares amounting to RM9.86bil compared with 10.39 billion shares worth RM7.94bil over the previous week.
Outlook: The FBM KLCI is once again flirting with the 1,609 support, en route to the psychologically important 1,600-level. A decline below this level would mean hitting 2015 levels, a new low for the FBM KLCI this year.
Looking at the daily price chart, the descending trendline remains firmly in place. The 14- and 21-day simple moving averages (SMA) are falling below the trendline, affirming the declining outlook.
The momentum indicators are also showing weakness. The slow-stochastic has showed falling momentum with the per cent K oscillator dropping below the oversold line. This is confirmed by the 14-day relative strength index, which also has entered oversold territory.
There is a likelihood the indicators will continue to travel in extended oversold conditions – a return to a rally would come only when the indicators retrace into neutral territory.
Given the current negative outlook, there is a possibility the index could be dragged below the stiff 1,609 mark. In that instance, it would find support at 1,580, a support last seen in September 2015.
There would be a tough battle ahead for the index to retrace its steps and reverse losses. The immediate hurdle rests at 1,626 although a more significant target is pegged to 1,640.
Higher still is a target at 1,660, which should see the index cross the 50-day SMA and signal a return to a rally.