The Straits Times Index rose by 62 points week-on-week to end at 3,624 on Sept 20. All in, the index is up 426 points since the low of 3,198 on Aug 6. Since the smoothed short-term RSI is above 80, the STI is overbought, and is likely to consolidate its recent gains in the coming week (Sept 23-27). The retreat-cum-consolidation is likely to be well supported at 3,500.
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 Hang Seng Index - which had underperformed the STI - due to domestic challenges such as a weak commercial property sector, has also broken out and its rally may have legs.
Local proxies include the Lion-OCBC Securities HS Tech ETF (HSTECH) and the Lion-OCBC Securitires China Leaders ETF. The latter is broad-based and is building a base.
HSTECH has broken out of a minor base formation accompanied by a significant expansion in volume, suggesting that it may be able to meet its immediate upside of around 63 cents.
See also: STI steadies despite overbought US markets and rising US risk-free rates
Normalised yield curve
It was with relief that many market watchers saw the yield curve normalising in the past two weeks. An inverted yield curve, usually an ominous sign often depicts the likelihood of a recession.
See also: Trumpian future of higher deficits, tariffs, point to inflation and higher interest rates
According to UOB Quarterly Global Outlook, the yield curve started normalising in August. The yield curve started to invert from July 2022 and has largely stayed inverted till data compiled from Bloomberg showed it had normalised on Sept 6.
“This normalisation of the yield curve can be simply explained by the quicker and larger drop in front end short-dated rates, which are more sensitive to market expectations of imminent Fed cutting cycle,” the UOB Quarterly Global Outlook report explains.
UOB expects the yield curve to steepen further although the steepening may be shallower than previous rounds, unless rate cuts accelerate if the jobs market weakens.
“A return to a positive yield curve should be a welcome relief as we are back to a “normal” yield curve regime whereby longer dated rates pay more due to higher risk,” UOB says, a sentiment echoed by many investors.
