The Straits Times Index faced resistance as it reached the 50- and 100-day moving averages at 3,240 and 3,236 respectively. The STI’s intra-day high on September 6 was 3,345. As at the end of the week of September 4-8, the STI had shed 25 points to close at 3,208. Smoothed RSI met with resistance at its equilibrium line and has turned down.

Directional movment indicators are neutral with ADX falling to a low 15, with the DIs neutrally placed. The low level of ADX suggests that the STI is likely to drift sideways. Support stays at around 3,150 for the time being.

US risk-free rates as represented by yields on 10-year US treasuries rebounded from 4.09% a week ago to 4.24% as at September 8.  The chart pattern could start to resemble a head-and-shoulder top formation if yields on the 10-year US treasuries move to 4.04%.

Bloomberg reports that Bank of America Corp (BofA) strategists say that the rising threat of interest rates staying higher-for-longer is likely to “drive a selloff in stocks over the next two months”. The strategists point out that rising bond yields make stocks unattractive. The S&P 500 earnings yield of 4.6% offer lower returns than the three-month Treasury bill yield of 5.5%, the BofA strategists argue. The negative gap of -0.9 percentage points is not positive for equities while positive spreads have coincided with extremely bullish periods for stocks, the BofA strategists indicate.

The other area of concern remains the Chinese residential sector. “While we do not expect a financial meltdown, the property slump will likely cost the Chinese economy in terms of long-term growth potential, primarily because of a sharp slowdown in investment,” note Dong Chen, Head of Macroeconomic Research, Pictet Wealth Management and Julien Holtz, Emerging Market Strategist, Pictet Wealth Management.

“Sentiment towards Chinese equities is undoubtedly depressed. Despite low valuations (10x and 11.7x forward P/Es respectively for offshore and onshore stocks), which look even more stretched on a sector-adjusted basis, investors are clearly not queuing to pile into Chinese stocks,” the duo say.

<span class='see_also_inread'><b>See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/right-timing/equity-markets-dictated-rising-risk-free-rates?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Equity markets dictated by rising risk-free rates</a></b></span>

“While the overall picture is grim, bearishness around Chinese equities may have reached a local peak and we therefore are refraining from cutting our exposure,” they add.

https://s3.ap-southeast-1.amazonaws.com/www.theedgesingapore.com/public/usr/8azncs/f46575-1104-RT.jpg

Straits Times Index retreats from resistance, but declines may be mild 

'Transition credits' could sweeten deal for early retirement of coal-fired power plants: MAS, McKinsey paper

DPM Lawrence Wong appointed as GIC’s deputy chairman

Will the Rising Sun keep rising?

Fed signals higher-for-longer rates with hikes almost finished

EQT Impact Challenge offers platform for impact entrepreneurs to attain 'patient capital'

ISDN posts 11.3% lower revenue, 43.8% lower net profit for 1HFY2023

Why it’s worth taking a closer look at Keppel REIT’s portfolio

New commodity opportunities arise as peak in fossil fuels looms

Straits Times Index retreats from resistance, but declines may be mild

Related News

Highlights

'Transition credits' could sweeten deal for early retirement of coal-fired power plants: MAS, McKinsey paper

Related News

CDG, UMS, Digital Core REIT among DBS’s stock picks to ride out ‘sideways volatility’

Keppel REIT replaces Olam Group in STI reserve list

DBS lowers STI target to 3,450; looks towards turnaround in 2H2023