The banks are likely to remain volatile given the impact of a turn in the interest rate cycle coupled with a global economic slowdown. The local banks’ sensitivety to the Federal Funds Rate is lower than two years ago based on the recent spate of results. This is due to their asset-liability management including the management of their securities book. Should they extend duration or stay shorter term with higher yields? This is a judgement call that the banks need to make, but this could mitigate the impact of decline in interest rates on their net interest income.
The Straits Times Index collapsed to 3,200, and rebounded within four trading sessions, with the index now settling near the original breakout level of 3,250-3,260. The coming week is likely to see the STI attempt a rebound given the recovery in the US and Japanese markets. Note though, that the Nikkei 225 has recovered but the 50% retracement of the loss experienced on Aug 5 is at 35,279 against the close of 32,025 on Aug 9, suggesting limited upside.
The STI may have further to retrace as a similar figure for the index is likely to work out at 3,350.
