Late pick-up lifts index above 1,600

  • Business
  • Saturday, 24 Aug 2019

REVIEW: The paralysis on the local market comes at a time when investors are weighing the negative impact of the trade war with the prospect of more stimulus and interest rate cuts by major central banks.

On the Malaysian equity scene, the local index continued in consolidation mode, hugging the 1,600 mark on either side of the reference as decisive movement was hobbled by speculation over policy cuts by the US Federal Reserve.

Prominent central bankers and policymakers have converged at Jackson Hole in Wyoming, US, since late yesterday for a symposium, where there may be hints and signals as to the direction of future monetary policy.

Earlier, the release of the Fed’s latest policy meeting minutes showed that officials agreed the move to cut interest rates in July was not to be viewed as a pre-set course for future cuts.

This was in line with chairmen Jerome Powell’s July press conference that the cut was a “mid-cycle adjustment”, putting a damper on expectations of more accommodative policy.

At the time of writing, CME FedWatch Tool has pinned a 98.1% probability on a 26-basis point (bps) rate cut come September, and a 1.9% probability of no change to the benchmark.

The chances of a 50 bps rate cut are currently zero, according to the forecast tool

Another policy event, the Group of Seven meeting, would follow closely from Aug 24-26 in Biarritz, France, as the leaders of the seven nations discuss the geopolitical turmoil and rising protectionism even as the German economy faces a possible recession

Apart from a possible US interest rate cut, there was some cheer as China announced it would reform how it set its benchmark loan prime rate in an attempt to lower borrowing costs for companies and support the economy amid the slowdown.

On Tuesday, China followed through on its interest rate revamp and announced a slightly lower one-year lending rate of 4.25% from 4.31% previously.

While welcome, analysts have said the slight adjustment would have only a modest impact on credit growth.

The FBM KLCI was somewhat cheered by the move, coupled with the prospect of the Fed helping to confirm a September rate cut by this weekend’s Jackson Hole event.

The index was seen rising 6.30 points to 1,602.75 in Tuesday trading, which would serve as the high point of the week.Meanwhile, investor sentiment over the US-China trade war would prove to be net negative over the week.

US President Donald Trump reaffirmed his commitment to the conflict as he said his confrontation with China was necessary despite the short-term harm it may cause the US economy.

This offset the news that Huawei had been given a 90-day extension on certain exemptions from the US sanctions.The FBM KLCI ambled along sideways as it ended the penultimate week of the Malaysian corporate earnings season. By Friday, the index ended the week with a positive performance at 1,609.33 ahead of Fed chairman Jerome Powell’s speech at Jackson Hole later in the day.

As the market heavyweights announce their earnings over the coming week, the results should provide investors with some insight as to how the trade war has impacted business performance over the quarter.

Statistics: The major index ended the week 10.11 points or 0.6% higher over the previous week, at 1,609.33. Total turnover for the trading week stood at 10.32 billion shares amounting to RM8.44bil compared with 8.33 billion shares worth RM6.64bil over the previous four-day trading week.

Outlook: As expected, the FBM KLCI stayed on a tight consolidation channel over the course of the week as investors awaited more developments on the global monetary scene.

The sideways movement reflects the build-up to major catalysts in the pipeline. The late advance on Friday to 1,609 suggested some optimism over the outcome of the Jackson Hole event although the slight gain remains unconvincing.

Should a strong trading lead be announced over the weekend, the index can be expected to react accordingly. Based on the daily price chart, the outlook remains weak as the share remains trading under the key simple moving averages (SMA), although Friday’s push put it above the 14-day SMA

Resistance can be observed overhead at 1,625 and 1,660, which lies just under the 200-day SMA.

To the downside, support can be found at 1,570 and 1,550.The technical indicators are turning more positive given the week’s positive performance.

The daily moving average convergence/divergence line has firmed up to cross higher than the signal line. Curving up from negative territory, the indicator shows growing bullish momentum.

However, a break above the zero line will be needed to confirm a bullish trend.

The slow-stochastic has risen to the overbought line at 80 points, with the percent K oscillator continuing to outpace the D oscillator.

A sustained push into overbought territory should signal an increase in buying momentum.

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