■ STI – Rally stalls 3100, near-term 2950-3050; awaiting Dec policy decisions by ECB and FED
■ Technicals – MXEF & MXSO point to more weakness in coming months
We believe that the rebound in the Singapore equity market has reached its high at 3100 last week. Over the course of the past month, our initial two upside levels of 3050 and 3100 for the STI was fulfilled but not 3150. With the year-end lull period approaching and the 100pt decline last week, the month long rally has stalled at 3100.
We see a ‘quiet’ November with STI range bound from 2950-3050 as investors await the outcome of the ECB policy meeting on 3 December and the FOMC meeting on 16 December. Investors are hopeful that the ECB may announce more ‘QE’ as early as December. Expectations for the FED to hike rates in December still hang on the balance.
Our economist at DBS Research observes growing skepticism about the effectiveness of QEs and easing monetary policies adopted by the major central banks – FED, ECB, BOJ and PBOC. At some point, markets may realise that this is not the answer.
From a technical perspective, we view the rise in the MSCI Emerging Markets Index (MXEF) and the MSCI South-East Asia Index (MXSO) as a counter-trend rally with the primary trend still down. MXEF should halt at/below the key resistance at 906 before heading down to 716 in the months ahead. Meanwhile, the key level to watch for MXSO is 665. A decline below this level signals a final decline to 550-570 in 1H16 before the major correction ends.
If the MXEF and MXSO is any indication, our bias is for the STI to eventually dip below the crucial support at 2950, sliding on a gradual down trend on declining volume for a re-test of the late September low of 2740 at least, in the month(s) ahead.
The 3Q results season continues with large cap stocks DBS, SIA Engineering, Capitaland, SATS, SIA and ST Engineering reporting this week. Investors will also be eyeing the US October job numbers scheduled for release Friday. Consensus expects non-farm payrolls to come in at 165k, and the unemployment rate at 5.1%. (Read Report)
Source : DBS Group Research