Pressure remains as trade tensions continue
REVIEW: The trade truce between the US and China brokered at the G20 summit last Saturday was initially seen to exceed expectations, although it wasn’t long before it dawned on investors that the policy delay amounted to very little.
At the centre of the negotiations was a postponement of further trade tariffs for 90 days, pushing back the Jan 1, 2019, deadline that Trump had set to levy taxes on the remainder of Chinese imports to the US.
The breathing space meant more time for negotiations and investors saw this as a breakthrough.
Asian markets reacted at Monday’s open, shooting higher on a relief rally. Oil prices surged an impressive 4% as an easing of trade tensions meant an improved demand outlook.
This was aided by the fact that Russian President Vladimir Putin and Saudi Crown Prince Mohammad bin Salman had agreed to extend supply cuts on the sidelines of the G20 meeting.
With the world’s two largest oil producers ouside of the US giving a nod to supply reduction, all that was left to discuss come Opec’s Thursday meeting was the depth of the cuts.
Bursa Malaysia was certainly buoyed by the global advance in stocks and commodities. The FBM KLCI rose nearly 20 points to 1,699.72.
While it was an impressive push, the inability to break out of the resistance showed a lack of follow-through buying.
At Asia’s Tuesday open, the profit-taking set in. The FBM KLCI pulled back 4.73 points to 1,694.99 as it dawned on investors that a three-month breather was no promise of a resolution.
While all this was happening, long-term US Treasury yields had begun to invert as yields on the five-year notes slipped below the three-year notes for the first time since 2007.
A yield curve invertion, a classic signal for a recession, hit US investor sentiment hard. The major US indices all fell over 3% with financial stocks plunging 4.4%.
Asian equities followed suit on Wednesday even as China tried to shore up confidence by reiterating its commitment towards reaching a trade deal with the US. In contrast, Trump, true to form, tweeted a threat that he was a “Tariff Man”.
Trading volume on Bursa Malaysia shrivelled given the sudden turn of sentiment and the FBM KLCI experienced a 6.72 points selldown to 1,688.72.
It had become apparent at this stage that the G20 summit had failed to make any significant impact on the equities landscape. The local equities market for its part was intent on remaining within the trading channel it has been trapped in over recent weeks.
A fresh twist came in the form of the arrest of Huawei’s global chief financial officer, the daughter of the founder of the telco giant, for violating US sanctions on Iran. US and Chinese relations were set to get rockier.
While US markets were closed overnight in a day of mourning for former president George H.W. Bush, US index futures took on a steep slide.
On Thursday, the FBM KLCI slipped to a six-week intra-day low of 1,670, breaching the support and threatening to take the market to a lower trading range. At market close, it retraced above the 1,680 mark to 1,683.34.
As Opec convened, the supply cuts met with a delay as Russia held out on its commitment. Brent crude prices slid below US$60 a barrel before rebounding on Friday.
Meanwhile, Top Glove and AMMB Holdings were welcomed into the 30-stock FBM KLCI as Telekom Malaysia and KLCC Property REIT made their exit. At week’s close, the FBM KLCI slid 2.8 points to stand at 1,680.54.
Statistics: Week-on-week, the major index was barely changed at 1,680.54. Total turnover for the week stood at 10.58 billion shares amounting to RM9.26bil compared with 10.84 billion shares worth RM13.14bil over the last trading week.
Outlook: Despite the meeting at the G20 summit, it appears the US and China are not any closer to finding a way out of the current impasse. As Monday’s knee-jerk gains were gradually wiped out over subsequent days, the market returned once more to 1,680.
The support managed to hold at yesterday’s close following several breaches in intra-day trade and over the course of the week. In the week ahead, a breach below the support would see the completion of a descending triangle and could trigger a steep decline.
Lower supports rests at 1,652. Stiff support is pegged at 1,609, a level that served as a reliable platform during the market selloff in 2016.
In the event of positive news, the index will rise towards the resistance of 1,709 in an attempt to break out of the descending pattern.
The technical indicators show no improvement over the week before as the slow-stochastic shows falling momentum at 37 points, two points under the previous Friday.