REVIEW: There was a persistent sideways movement on the FBM KLCI ahead of key interest-rate decisions by the US Federal Reserve and European Central Bank (ECB).
Hopes of a rebound off the 50-day simple moving average fizzled, as expected. The likelihood of a sustained push was low, given that investors were crouched near the support in a wait-and-see position.
It seemed at first that equities would get through the week relatively unscathed as the daily news flow of corporate earnings from the US came in better than expected.
The US earnings season had triggered fears that contracting business earnings would signal slowing global growth but positive earnings over some large-cap counters kept the positive mood in check and bellwether Wall Street indices on an even footing.
Over the week, Coca-Cola, United Technologies, 3M and Anheuser-Busch InBev posted positive earnings, leading a lift on the US indices. Facebook also proved resilient as it posted a profit of 91 cents a share despite having paid off a record fine by regulators over privacy issues.
The midweek news of US representatives travelling to Beijing to resume trade talks was also welcome, offering yet another round of hope that progress would be made to resolve the ongoing dispute.
As has been the case in the past, the news had the effect of a carrot on a stick, keeping global markets moving forward while little had been set in stone. This, however, was not enough to keep the FBM KLCI from gravitating lower on its sideways channel, as it lost 3.26 points to 1,652.41 on Wednesday.
Hopes were high in Thursday’s lead up to the ECB announcement, leading to a 4.17-point gain on the FBM KLCI.
However, the optimism was for naught as the ECB decision announced in the late evening served to break the sideways trading of the market to bearish effect. Defying most predictions for a 10 bps rate cut, the ECB said it was holding steady to existing interest rates.
Moving forward, it signalled it was ready to cut rates in September and restart a massive bond-buying programme in what it called “a highly accommodative policy” moving forward.
Global equities reacted negatively to the news, starting with Europe and Wall Street, before Asian markets opened on Friday to a sea of red.
The FBM KLCI finally slipped below the 50-day simple moving average to a low of 1,647.96, although the breach remained slight, suggesting that investment risk appetite remained in the lead up to the US Fed decision on July 31.
Questions over the depth of the US rate cut remained unanswered although polls show an overwhelming number of analysts predicting a 25 bps cut. Expectations of a 50 bps reduction had fallen to 21.4%, according to CME FedWatch Tool at the time of writing.
A bright spot on the domestic market was the Genting counters, which embarked on a rally from Tuesday to Friday. Genting and Genting Malaysia advanced to three- and eight-month highs, respectively, on speculation that the group’s stalled theme park might be seeing a new lease of life, and sooner than expected.
The advance extended through the remainder of the week as confirmation came that the group had indeed resumed discussions over the fate of the world’s first Fox-branded theme park.
Statistics: The major index ended the week 10.23 points or 0.6% lower over the previous week, at 1,647.96. Total turnover for the trading week stood at 13.96 billion shares amounting to RM9.9bil compared with 14.5 billion shares worth RM8.97bil over the previous week.
Outlook: The FBM KLCI entered a downtrend yesterday as it slipped below the 50- and 100-day simple moving averages (SMAs), breaching also the psychologically important 1,650-point mark.
However, the breach remains tentative with an opportunity to return higher with the return of positive news flow.
As the date of the US rate decision looms closer, the index is expected to hold near this level of trading barring any major catalysts.
The US delegation’s meeting with Beijing officials is scheduled for Tuesday and Wednesday, thus ending just hours before the Fed wraps up its own meeting. Markets will be seeing notable price action as the events unfold.
Based on developments on the FBM KLCI daily price chart, the negative pressure is building with the key moving averages heading downwards to reflect recent price developments.
The momentum indicators are also reflecting the bearish sentiment. The daily moving average convergence/divergence line has crossed below the zero line to signal a downtrend while the slow-stochastic has crossed into a “sell” signal with room to fall before it hits oversold levels.
Along this downward trajectory, the FBM KLCI is expected to find support at the 1,626 level. Sustained selling pressure would take it lower to the next support at 1,609.
The 200-day SMA has slipped lower to 1,673. In the event of a reversal, the index should test the 200-day SMA and approach the 1,700 mark.