The Straits Times Index experienced minimal movement during first week of May, ended at 3,266 on May 5, down four points week-on-week. On May 3, the STI formed a small hammer on the candlestick chart after a few sessions of decline and a gravestone. Additionally, the STI is making these moves at the near-confluence of the 50- and 100-day moving averages at 3,254 and 3,278 respectively. This range is starting to act as a support area.
Although short term indicators are falling, ADX is at 15, and the DIs are neutral. These indicators suggest that the index may stay within a narrow range, between 3,254 and 3,278. The intra-day low on May 3 was 3,243; the 200-day moving average is at 3,237. These levels should provide support in the event the STI closes below 3,254.
Central banks made the major moves, albeit less spectacular than at earlier stages in the cycle - the Federal Reserve raised its Federal Funds Rate by 25 bps taking it to 5.25%; the European Central Bank raised its key interest rate, also by 25 bps taking it to 3.25%.
UOB Economics and Markets Research says: “markets continue to imply substantial rate cuts by end of the year, an expectation which Fed Chair Jerome Powell has characterised as “not appropriate.”
Indeed, the chart of the 10-year treasury yield shows the yield falling below its moving averages which in turn have turned down. Directional movement indicators appear to be turning negative, and quarterly momentum is rolling over after its inability to move above its equilibrium line. Support/ breakdown is at hand, at 3.40%. And there are signs that this level could give way.
