The Straits Times Index ended the week of Nov 18-22 at 3,746, up 2 points week-on-week. Although short-term indicators are showing mild negative divergences with the STI, no signs of a breakdown have emerged.
On Nov 18, the index made a post-Covid-19, post-global financial crisis high of 3,757 before retreating. Additionally, volume eased as the index started moving sideways.
Since directional movement indicators are intact, with the DIs positively placed and ADX still rising, the STI’s sideways range could be resolved on the upside.
The earlier breakout on Nov 7 indicated a measuring object of 3,980. This target represents potential rather than an absolute target. Support has been established at the bottom of the sideways range, at 3,657.
At present, the STI remains a price taker rather than a trendsetter. The problem with the US markets is that both the S&P 500 and the Nasdaq are overstretched and overbought on a short-term basis, with short-term indicators starting to form negative divergences with price. This does not mean an immediate correction, but it shows that the US markets are becoming somewhat jaded.
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Yields on 10-year US treasuries remain in a gradually rising trend, ending at 4.34% on Nov 22 after moving to a high of 4.41% on Nov 21.
Steven Oh, global head of credit and fixed income, and co-head of leveraged finance at PineBridge Investments, says his base case has been a non-recessionary rate-cutting cycle that should support credit performance in 2025.
“The US election’s red-sweep outcome will add to pro-growth policies and further support risk assets from a fundamental perspective, while introducing potential headwinds outside the US amid more restrictive trade policies,” he says.
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However, stimulative fiscal policies will add to near-term inflationary pressures, resulting in a less accommodative Federal Reserve and yield curves remaining at recently elevated levels, Oh cautions.
By contrast, the weaker economic outlook for Europe will allow the European Central Bank (ECB) to cut rates at a steady pace. The net outcome should bolster a stronger US dollar.
For equities, valuations are “extremely tight, which fully reflect hyper-bullish sentiment”, Oh says.
For credit, “high yield bond defaults have already peaked in the current cycle and are expected to decline, while leveraged loan defaults, including liability management exercises (LMEs), should remain near historical averages”, Oh says.
“We view Emerging Market debt as a source of diversification but do not think valuations are especially cheap. China, Emerging Markets (particularly Mexico), and even Europe could be dragged into trade policy challenges under the coming 'America first' regime,” he adds.
