The Fear Index or VIX (Chicago Board Options Exchange Volatility Index) has retreated from the twice tested 26 level in the week of Mar 13-17. This may lead to markets heading for calmer waters.
The Straits Times Index ended up five points week-on-week at 3,183 on March 17 after touching an intra-day low of 3,094 on Mar 14. The move establised the 3,100 as support. Resistance is at the flattish 200-day moving average at 3,216 which was breached in the week of March 6-10. At present the STI's rebound is a reaction to oversold lows and unlikely to continue for more than a week.
Yields on 10-year US Treasuries have fallen sharply from as high as 4% in the week of Feb 27-Mar 3 to 3.54% on Mar 16. While 10-year yields have fallen below their 50- and 100-day moving averages, they remain above the 200-day moving average at 3.46%.
Will the US Federal Reserve raise rates on Mar 21-22? There is a 50:50 chance market strategists say. The Financial Times has reported that the chief economist at the OECD has urged central banks to continue raising rates. That may be the right thing to do in countries where there haven’t been any bank failures.
Bank failures have a similar impact on the economy as higher interest rates do. They usually stop people and companies borrowing, and they tend to cool the economy down. Back in 2008, bank failures cooled the global economy to the extent it went into recession.
In the meantime, yields on 10-year US treasuries retreated to 3.85% as at Mar 9, down from 3.98% a week ago. Yields on 10-year Singapore Government Securities have also fallen, to 2.94% as at March 17, from 3.23% as at March 10.
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
