The Straits Times Index collapsed to 3,200, and rebounded within four trading sessions, with the index now settling near the original breakout level of 3,250-3,260. The coming week is likely to see the STI attempt a rebound given the recovery in the US and Japanese markets. Note though, that the Nikkei 225 has recovered but the 50% retracement of the loss experienced on Aug 5 is at 35,279 against the close of 32,025 on Aug 9, suggesting limited upside.
The STI may have further to retrace as a similar figure for the index is likely to work out at 3,350.
The banks are likely to remain volatile given the impact of a turn in the interest rate cycle coupled with a global economic slowdown. The local banks’ sensitivety to the Federal Funds Rate is lower than two years ago based on the recent spate of results. This is due to their asset-liability management including the management of their securities book. Should they extend duration or stay shorter term with higher yields? This is a judgement call that the banks need to make, but this could mitigate the impact of decline in interest rates on their net interest income.
Technically, DBS Group Holdings’ chart looks like the weakest among the banks, having fallen from a top formation. While prices are set for a rebound, the breakdown level of $35.00-$35.30 is likely to pose resistance. This is despite DBS’s management guiding for a single-digit growth in net profit this year putting DBS's net profit above $10 billion for the second consecutive year.
Although the FTSE REIT Index, which ended at 645 on Aug 8, has remained above the original breakout level of 620, it may fall below the 50- and 100-day moving averages both of which are at 642.
The 10-year Treasury yield which had touched a low of 3.8% rebounded to 3.96% as at Aug 9. The 4% level is likely to provide some psychological resistance. The breakdown level was at 4.22%.
See also: STI steadies despite overbought US markets and rising US risk-free rates
