The upshot is that the banks should be able to support a steadily advancing Straits Times Index (STI), which ended the week of May 5-9 at 3,876, up 31 points week-on-week, and more than 200 points short of 4,000.
The technical condition of the index remains intact. The 50- and 100-day moving averages, at 3,823 and 3,824 respectively, remain positively placed and are supporting the index. Quarterly and annual momentum have recovered, with quarterly momentum having risen above its equilibrium line and moving marginally into positive territory.
Despite being more than 100 points below the magical 4,000 mark, the STI’s indicators should be able to support a further rally by the index towards this level.
The US treasury yield which is at 4.39% as at May 9, is testing its flat 100-day moving average at 4.41% for the fourth time. If it breaks out on the upside, the implications are negative for bonds.
See also: Can the STI hold above 4,000?
Nonetheless, 10-year yield of Singapore Government Securities is at 2.43%, almost 200 basis points lower, suggesting ample liquidity in the local market. As a result, a divergence is materialising between the local market and the US market, lending credence to further gains by the STI.
Elsewhere, Bloomberg reports that US Federal Reserve Governor Michael Barr said the Trump administration’s trade policies could put the US central bank in a difficult position by generating persistent inflationary pressures and higher unemployment.
Barr echoed comments from Fed Chair Jerome Powell, who said earlier this week the US economy remains on solid ground, giving officials time to wait to learn more about the tariffs and their impact.
See also: Falling local risk-free rates buoy STI, REIT index
“The size and scope of the recent tariff increases are without modern precedent, we don’t know their final form and it is too soon to know how they will affect the economy,” Barr said in the text of remarks he’s scheduled to deliver on May 9 at a conference in Reykjavik, Iceland.
“In my view, higher tariffs could lead to disruption to global supply chains and create persistent upward pressure on inflation. I am equally concerned that tariffs will lead to higher unemployment as the economy slows. Thus, the FOMC may be in a difficult position if we were to see both rising inflation and rising unemployment,” Barr said.
In the meantime, support for the STI has been established at 3,822, and resistance remains at 4,000.
