Pres­sure re­mains as trade ten­sions con­tinue

The Star Malaysia - StarBiz - - Market Watch - FONG MIN YUAN my­[email protected]­ Mar­ket trend

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.

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