Investors await rate cuts and trade talks

  • Stocks Analysis
  • Saturday, 14 Sep 2019

REVIEW: As the European Central Bank unveiled a fresh volley of stimulus measures on Thursday, among them a further 10 basis-point cut to its negative interest rate, investors are now expecting more than ever for the US Federal Reserve to follow suit.

Should the US central bank take a step deeper into accommodative territory, this could trigger another round of interest rate cuts by global central banks, in an an effort to boost liquidity in the financial markets.Earlier in the day, Bank Negara’s had held its own monetary policy meeting, which maintained the status quo with regards to the overnight policy rate.

Policymakers are trying to steer the economy back on track, as the trade war had stepped into high gear following the impositon of tariffs on essentially all US and Chinese exports to each other’s markets.De-escalation seemed to be at the top of the agenda of US and Chinese policymakes as they paved the way to scheduled October trade talks with gestures of reconciliation.An initiative to quell trade war fears came in the form of China’s move to waive import tariffs on over a dozen US goods.

However, soybean and meat products – two major US imports – were not on the list.Beijing also removed quotas on foreign investment schemes in a symbolic display of its willingness to improve access to its markets amid criticism by Washington.

US President Donald Trump responded with his own goodwill gesture, announcing a two-week delay to the implementation of fresh tariffs scheduled for Oct 1, which coincided with the 70th anniversary of the formation of the People’s Republic of China.These developments, reflecting the eagerness of both parties to find a trade compromise, helped to shore up investor confidence in the coming trade talks.

On Bursa Malaysia after a long weekend, Axiata’s resumption of trading had investors scurrying to cut their holdings in the telco. Negative news that a proposed merger between Axiata and Norway’s Telenor had fallen through sent the former’s share price plunging.

By market close on Tuesday, the stock had lost 77 sen or 15.7% to RM4.11, which marked a return to its May trading levels, prior to the announcement of the proposed merger. Digi fared better, perhaps owing to the stock being a dividend play, and fell 29 sen or 5.9% to RM4.60.

This selldown was enough to bring the FBM KLCI 8.62 points lower to 1,595.85 at the end of Tuesday trading. However, these losses were mostly retraced by Wednesday as news of US and China easing back on tariff policies helped to lift world markets.

The local index rebounded 6.45 points to 1,602.30.

Petronas counters were also in the spotlight at midweek spurred on by heightened speculation in oil futures.

The easing of trade tensions helped trigger a rebound in oil prices following a deep tumble over the Wednesday session. Petronas Chemicals was seen soaring over Tuesday and Wednesday.

Petronas Dagangan, meanwhile, shot up 7.5% on Tuesday but pared gains on profit-taking in the subsequent session.

By Friday, while regional markets were advancing on news of the ECB stimulus package, the respite last for only a brief 30 minutes on Bursa Malaysia.

Following a mild advance, investors quickly cashed in to gains ahead of yet another long weekend.By market close, the index showed little change with a 0.25 gain to 1,601.25

Statistics: The major index ended the week 3.22 points or 0.2% lower over the previous week, at 1,601.25.Total turnover for the four-day trading week stood at 8.52 billion shares amounting to RM6.95bil compared with 8.27 billion shares worth RM6.34bil over the previous four-day week.

Outlook: It seems little has changed on the FBM KLCI ‘s outlook. With the index firmly caught in a consolidation phase, the share continues to cross the 1,600 mark in both directions.

It hasn’t helped that Bursa Malaysia has already experienced two holiday-shortened weeks and is now looking at a third in September.

Trading volume on the stock exchange, which has been seen weakening owing to the volatile trading environment, has been further impacted by the holiday season.

Choosing the side of caution, investors are waiting out the volatile external environment and looking forward to another possible round of monetary easing and trade talks.

The FBM KLCI is now moving closely to the short-term moving averages but remains under the 50-and 100-day SMAs, which have made a negative crossing to signal a growing bearishness.

Going by the technical indicators, a series of mixed signals suggest further movement along the sideways channel in the coming sessions.

Amid this negative outlook, support can be found at 1,570 and 1,550 while resistance is pegged to 1,625 and 1,660.

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