Currency fears trigger volatility

  • Business
  • Saturday, 10 Aug 2019

REVIEW: The fallout from the escalation of the US-China trade war continue with retaliation from Beijing over the latest proposed US tariffs.

The Chinese yuan was in the spotlight with traders selling down on the currency and moving to safe haven assets.

The currency fell to its lowest level in more than decade and Washington was quick to apply pressure by labelling China a currency manipulator, further irking the republic.

While analysts suggest that a US complaint to the International Monetary Fund represents little more than a symbolic gesture, Beijing took umbrage with the move, further diminishing hopes of a speedy reconciliation between the two economic powers.

All this bode poorly for the global outlook, as the prospect of a currency war would serve to further derail the world’s economy.On Thursday, China moved to provide some support for the yuan by fixing the daily reference rate at 7.0039 to the dollar, weaker than the seven mark for the first time since 2008. Investors had expected an even weaker yuan and welcomed the fixing as timely intervention.By yesterday, the fixing had been lowered to 7.0136 per dollar.

On the domestic market, the negative technical outlook played itself out over several trading sessions.

A deep slide of 16.35 points on the FBM KLCI to 1, 610.41 on Monday was coupled with strong negative momentum as investors fled to the sidelines in anticipation of growing headwinds.

Overnight, US markets also signalled the dramatic downturn in sentiment as furious selling sent stock prices spiralling, even as the VIX volatility Index jumped nearly 40% to a seven-month high.

True to its promise of retaliation, China said its companies would stop the purchase of US agricultural goods, which dealt a devastating blow to US farmers already impacted by diminishing exports since the start of the trade war.

The Dow Jones was down 961 points at its worst, but clawed back some losses to end the day 767 points or nearly 3% lower. The S&P500 Index was also down 3% while the Nasdaq plunged 3.5%.

Tracking the bloodshed that had taken hold of global markets, the FBM KLC dove more than 20 points on Tuesday morning.

However, the index was seen retracing its losses with oversold readings in technical indicators giving investors their cue to pick up bargains.

Ending the day at 1, 611.70, the FBM KLCI was up 1.38 points, serving as one of few major Asian markets to remain above water.

On Wednesday, it seemed the local market was given little chance to stabilise as Genting Malaysia announced news it had purchased a 46% stake in the Nasdaq’s loss-making Empire Reports Inc from Tan Sri Lim Kok Thay’s Kien Huat Realty III Ltd.

Both Genting Malaysia and holding company Genting saw their shares actively sold down, striking off nearly eight points from the FBM KLCI.

At market close, the index was down 7.09 points to 1, 604.70, staying ahead of the critical 1, 600-point level.

A solid rebound came on Thursday as Chinese export data came in. The FBM KLCI continued to push higher on the rebound from oversold conditions, rising 11.32 points to 1, 616.02.

The domestic market sustained its advance over most of Friday but flattened out at the end of trading to a mild loss of 0.97 points to 1, 615.05 points.

Statistics: The major index ended the week 11.71 points or 0.7% lower over the previous week, at 1, 615.05. Total turnover for the trading week stood at 12.45 billion shares amounting to RM10.1bil compared with 10.07 billion shares worth RM8.26bil over the previous four-day week.

Outlook: The intra-day rebound in Tuesday’s trading following a sharp morning sell-off helped to stem what may have otherwise been a deeper breakdown in the technical outlook of the FBM KLCI.

Although the week ended with a net negative performance, the partial retracement over the course the week helped to turn the index back above the 1, 600 line.

The mixed signals from the technical indicators suggest a consolidation phase. The slow-stochastic has turned upward-facing, which suggests growing strength in the momentum. However, the MACD line remains in negative territory and below the signal line, suggesting a growing downtrend.

The FBM KLCI remains below the resistance of 1, 626, which it gave up over the week.

Short of an advance beyond that, past the 100 and 50-day simple moving averages, the index is expected to continue looking bearish. Further resistance is pegged at 1, 660.

The index is seen moving sideways with uncertainty returning to the market as was evidenced by yesterday’s mild movement.

Investors could be seen retreating to the 1, 600 line if any further developments trigger caution. Lower support rests at the May low of 1, 572.

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