The yield curve continues to normalise as the 10-year Treasury yield inches higher, at 3.78% on Sept 26, compared to 3.7% as at Sept 20, and the 2-year Treasury yield stayed stable during the week. The Federal Reserve’s preferred inflation indicator, the Personal Consumption Expenditure (PCE) price index, rose 0.1% for August, and by 2.2% y-o-y, putting inflation almost within the Fed’s target.
Elsewhere, the Hang Seng Index has made a new one-year high at 20,632, after breaking out of a minor resistance. The major resistance, and the top of a multi-month base appears at 22,688. This index had already broken out by the time China unleashed a not insignificant stimulus package.
As indicators go, short-term RSI and quarterly momentum are both high, but not overextended, suggesting that the Hang Seng Index may continue to move higher in the near term, before easing in October.
Local proxies for Hong Kong and China are the Lion-OCBC Securities HS Tech ETF (HSTECH) and the Lion-OCBC Securitires China Leaders ETF. Both have surged somewhat during Sept 23-27. Of the two, HSTECH is more liquid and easier to trade should prices ease.
See also: STI steadies despite overbought US markets and rising US risk-free rates
In the meantime, the Straits Times Index fell by 51 points week-on-week to end at 3,573 on Sept 27. During the week of Sept 23-27, the STI tested a high of 3,630 on Sept 23. The retreat may not have run its course despite the appearance of a spinning top. As short and medium-term indicators are easing, the index could ease towards 3,500 before it resumes the uptrend.
Further out, based on a measured move objective following the breakout above 3,499 on Sept 10, the STI’s target is at around 3,800. Its all-time high in 2008, before the Lehman crisis hit markets was 3,870. As important highs are likely to provide resistance, the STI is unlikely to better 3,870 in the near to medium term.
The FTSE ST All Shares REIT Index is likely to move progressively higher after ending the week of Sept 23-27 at 681. An upside of 720 was indicated following a breakout in the beginning of September, and this appears attainable.
