Bursa slips further on roaring US economy

REVIEW: Surging US bond yields once again emerged as a key catalyst to watch for in the later half of the trading week after days of cautionary trading on Bursa Malaysia.

China’s markets were closed for its Golden Week holidays but will play catch up to the negative sentiment affecting other Asian markets when it reopens.

While China slumbered, there were also fears over the Asian giant’s economy. The purchasing managers’ index revealed weakness in Chinese manufacturing. Coupled with that data, JPMorgan Chase & Co became the latest stockbroker to cut its bullish call on Chinese equity.

On the heels of ratings cuts by Morgan Stanley, Nomura Holdings and Jefferies Group earlier this year, the New York banker said a full-blown trade war had become its new base-case scenario for 2019.

At the week’s open, the North American Free Trade Agreement (Nafta) that had been finally been agreed upon between Canada and the US left a feeling of relief that a trade conflict would not worsen in that part of the world.

Meanwhile, Brent crude futures jumped above the US$85 a barrel mark as the deadline for US sanctions on Iran loomed, setting a new level of support for the commodity. In subsequent trading sessions, it became clearer that prices were set to proceed further with a possible target of the US$88-US$90 a barrel mark.

The ringgit remained little changed from this price escalation as the strength of the US dollar kept the local currency moving in consolidation mode.

Oil-related counters on the local market took the opportunity to rally with all three FBM KLCI-linked Petronas counters putting on gains. Hibiscus Petroleum, Sumatec Resources, Perdana Peroleum and Reach Energy were among the top active counters for the session, seeing advances ranging from 5% to 40%.

Barely budging by market close, the FBM KLCI ended at 1,792.46 on Monday.

On Tuesday, Asia’s markets showed mixed results. Japan’s Nikkei, which had touched a 27-year high on Monday, rose another 0.1%. Hong Kong’s Hang Seng, however, fell a whopping 2.4% as it returned from an extended weekend given the downwards pressure on its currency. South Korea’s Kospi, similarly, dropped 1.25%.

The local index rose 5.69 points to 1,798.15, buoyed by higher oil prices.

Overnight, the Dow Jones Industrial Average reached a new closing record of 26,773 points even as the other two major indices slipped on Facebook’s and Amazon’s shares.

In Europe, an impasse between eurozone and Italian regulators seemed to have been averted as the latter agreed to reduce its budget deficit to 2% of GDP by 2020 from the earlier announced 2.4%.

At midweek on Bursa, oil-related counters Dialog and Petronas Chemicals were among the top gainers. Nevertheless, the FBM KLCI slid a slight 1.85 points to 1,796.30.

A wider sell-off in Asian stocks was seen on Thursday as US Treasury yields soared to multi-year highs on strong economic data. Across the globe, fears of accelerated foreign fund outflows plagued equities.

The Hang Seng slid nearly 2% for a third consecutive session of losses while the Nikkei and Kospi were also firmly in the red.

The prospect of the region getting slugged further by a roaring US economy loomed, and the FBM KLCI slid 6.19 points to 1,790.11.

Overnight, this fear would be compounded as the yield on the benchmark 10-year US Treasury note hit a seven-year high of 3.232 on expectations that the US salary report to be released later yesterday would be stronger than expected.

Wall Street lost its calm, and the Dow Jones shed 200 points or 0.75%. The S&P500 lost 0.8% but the Nasdaq took the biggest hit, falling 1.8%.

Negative local sentiment was worsened by weaker-than-expected Malaysian August export data – down 0.3% from a year earlier. At market close, the FBM KLCI was down 12.96 points at 1,777.15.

Statistics: Week-on-week, the major index was down 16 points or 0.9% to 1,1,777.15. Total turnover for the week stood at 11.87 billion shares amounting to RM10.12bil compared with 9.82 billion shares worth RM10.09bil over the last trading week.

Outlook: US economic growth outpacing other markets is once again taking centre stage on the investment scene. Coupled with US Fed chairman Jerome Powell’s comments that there is a “remarkably positive outlook” on the US economy moving forward, conditions for emerging markets looking forward appear to be in a slump.

The FBM KLCI came closer to testing the 1,775 support yesterday, a break of which would have seen a negative exit of the trading channel the index has been trapped in since August.

The momentum indicators do not paint a positive picture. The slow-stochastic has descended to rest on the oversold line at 20 points while the 14-day relative strength index has moved into oversold territory.

Given the proximity of the index to its immediate support, there is a possibility of a break in the coming sessions, in which case the next support can be found at 1,760.

Should equities find relief from the selling pressure on Monday, the index would return to its comfort zone near the 1,800 mark.