Interestingly, the FTSE REIT Index has just broken out of a base formation, setting an upside of 721. The index is unlikely to surge, but it should be able to move gradually higher as the year wears on.
The Straits Times Index (STI) rose a further 54 points during the week of Aug 26-30, taking the gains in the past three weeks to 194 points. As a result, the index has moved above the breakdown level of 3,420.
Technically, the STI’s 50- and 100-day moving averages had drawn together during the first week of August and drew apart in subsequent weeks. This is a positive signal. In the meantime, quarterly momentum continues to rise, and ADX is turning up from neutral levels as DIs turn positive.
The 2024 high for the STI is at 3,499, and this could be challenged shortly. The main drawback for the local market is its lack of liquidity and volume remains lacklustre. This trend may persist as more companies delist, and the Singapore market loses its position in the MSCI indices.
The S&P 500 moved within a whisker of its all-time high of 5,667, which was attained on July 16.
UOB Global Economics and Markets Research says US Federal Reserve Chairman Jerome Powell’s clear signalling of the start of a rate cutting cycle at the upcoming September FOMC meeting reinforces the further drop in yield, as well as the sharper pullback in the US dollar across August.
See also: STI steadies despite overbought US markets and rising US risk-free rates
“While we reiterate our core view of further USD weakness from here, we note that this may come with two-way volatility. We think markets’ expectation of the extent of Fed easing may be too aggressive (100 bps in total by end 2024) compared to our expectations (50 bps in total by end 2024). Trajectory of rate cuts is likely to be “gradual and measured” rather than “fast and furious”,” the UOB report, dated Aug 30, says.
A more measured rate cut cycle is likely to have a mildly negative impact on the outlook for the banks in 2025 when asset yields start getting repriced.
However, UOB points out that there may be synchronised strength in Asia FX, as exporters start to repatriate and unwind US dollar proceeds collected over the past few months of US dikkar strength. Hence, banks with an Asean footprint may be less negatively impacted as growth returns to Asean economies, and strength returns to their currencies. The beneficiary may be none other than UOB itself.
