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Market commentary: chase it or fade it?

By Margaret Yang Yan

Last week global equity market has enjoyed a relief rebound following commodities’ marvellous rebound, China RRR cut and US jobs data beating expectations. However, this week the Asia markets seem to be taking a break and entered into a correction. A lot of people may have this question in mind now: Is this rebound going to last?

The Singapore Straits Times Index has failed to stand above the 2800 level, and closed at 44.7 points lower yesterday. The Simsci Futures daily chart shows a pattern that is close to (although not exactly matching) an Evening Star pattern. Evening Star is usually considered as an uptrend reversing indicator.

Singapore Free Mar 2016 (Simsci Futures March contract)image006

I’m not overly-optimistic about the recent rally as the fundamentals haven’t improved much from January especially after yesterday’s disappointing China Trade balance data. Calm down and look at these facts announced recently:

  •  Yesterday - China trade balance tumbled to $32.6bn (missing expectation of $50.15bn) with exports falling -25.4% vs -12.5% forecast for the biggest decline since May 2009.
  • This Monday - Hong Kong Feb Homes Sales turnover tumble 70% to a 25-years low as worries on slowdown deepens. HK property price has already come down 10% from its 5-year high in Sep 2015.
  • Last Friday - US trade deficit widened more than expected in January as strong dollar and weak global demand curbed the country’s exports. In fact, the US exports have declined for four straight months.
  • Last Saturday - Chinese Premier Li Keqiang revised the country’s 2016 GDP target at 6.5%-7% at the National People’s Congress. The policy makers probably need to adopt looser monetary policy and higher budget deficits to achieve this GDP target. If they do so, the RMB may come under pressure.
  • Last week - Singapore’s January manufacturing output was down for the 12th straight month.
  • Crude oil inventory is still at 5 years high, and I don’t see a clue of the change of supply-demand relationship yet. How far can oil price go?

Unless there are signs of improvement in the fundamentals, we should stay calm and be skeptical on short-term technical rebounds driven by optimistic.

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About the author

Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.