The Straits Times Index ended the week of Sept 18-22 at 3,204, down 76 points week-on-week, losing almost all the gains the index registered in the week ending Sept 15. The index is likely to remain rangebound, moving around the confluence of the 50-, 100- and 200-day moving averages at 3,251, 3,229 and 3,253 respectively. It appears that the trading range for the index is likely to be around 1% above the moving averages and between 1.3%-3% below the moving averages for the time being. As such, immediate support is likely near the 3,200 area with more substantial support at 3,150.
Overall, and more broadly, developed markets’ equity markets may remain pressured by still-rising risk-free rates. Yields on the 10-year US treasuries are at 4.47% as at Sept 22. This is the highest level since 2007, before the global financial crisis.
UOB Global Economics and Markets Research’s senior economist Alvin Liew says the most consequential release of the Sep FOMC is likely the Dotplot which indicated strong but not unanimous support among policy members for one more hike in 2023.
“The September Dotplot showed 10 of the 19 FOMC members expect the policy rate to remain above 5% next year (versus just 6 members who echoed that view in Jun) while only 2 members expect rates to fall below 4.5% in the Sep Dotplot (versus 8 members indicated that in Jun FOMC). The implication is very clear, that expectations for rate cuts in 2024 have been drastically curbed and Fed policy could remain tight for a much longer duration than what we previously believed,” Liew writes of the Sept 20 decision by the Fed to leave rates unchanged this month.
Sailesh Kumar Jha, Group Chief Economist and Head of Market Research, RHB Bank, expects the 10-year US treasury yield to rise further from current levels. “Our end-2023 UST10YR yield forecast is revised to around 5% from 4.5-5.%. In 1H2024, we expect UST10YR yields to peak at around 5.5%, with the balance of risks tilted towards a print of 6.0%,” he says.
“Tactically, for 4Q2023 on a global basis, we are overweight cash, market weight equities, and underweight fixed income on back of a further rise in UST10YR yields,” Jha adds.
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
On the bond front, JP Morgan announced the inclusion of India's government bonds in the JP Morgan Government Bond Index-Emerging Markets (GBI-EM Bond Index). The inclusion takes place as at end-June 2024, with the weight increasing by 1% a month reaching the index ceiling of 10% by end-March 2025.
“The assets tracking the index have been mentioned as being around US$210 billion, which implies inflows of US$21 billion by March 2024. The flows will be substantial for FY2025 in providing stable funding for Indian government bonds (IGB) and cushion [for] India’s balance of payments against a widening of the current account deficit,” states an update by Bank of America.
“IGB yields have held up well this year even as domestic inflation went sharply higher, markets priced rate hikes, liquidity tightened and bond issuance stayed elevated,” BofA notes.
See also: Continued steps towards a Chinese New Year rally
However, BofA expects India’s inclusion to reduce weights of other markets which may likely be Malaysia and Thailand.
