Nothing New In Downward Trend For Equity Markets?

The FBM KLCI took a bashing last week by -2.85%, declining every day to settle at a six-month low of 1,493.95 points.

Nothing New In Downward Trend For Equity Markets?

Major equity markets saw significant pullback as a downward trend continued last week with inflation stoking fears once again after the United States recorded a CPI growth of 8.6%yoy in May, the highest that was seen in four decades.

The World Bank slashed its 2022 global growth forecast to +2.9% from an initial projection of +4.1% on the back of high inflation risk and slower domestic demand.

These are attributable to the elevated global commodity prices caused by the Russia-Ukraine war and supply chain disruptions, partially caused by China’s extended lockdown. (ED: However, we believe the commodity prices are impacted by the sanctions against Russia too.)

Wall Street in downward trend

Benchmark indexes on Wall Street hit their one-month lows last Friday due to the hot inflation data. The S&P500 tanked -5.05% last Friday, while the Dow Jones Industrial Average lost -4.58%. The tech-heavy Nasdaq Composite Index retreated -5.6% to 11,340.02 points

ECB hinted its first rate hike of 25bps in the upcoming monetary policy meeting in Jul-22, after 11 years. It is ending its long-running bond buying scheme on July 1 and start the hiking process in the same month, followed with a second rate hike in Sep-22

In China, the Caixin services PMI contracted for the third consecutive month in May at 41.4, below expectations of 47.3, though this has improved slightly from 36.2 in April as lockdowns in Shanghai eased

Employment growth in Malaysia surged to a record high of +3.3%yoy in Apr-22 while the labour force expanded steadily at 2.5%yoy, the fastest pace in more than three years while unemployment declined to 3.9% .

The FBM KLCI took a bashing last week by -2.85%, declining every day to settle at a six-month low of 1,493.95 points. The ringgit saw a weekly depreciation by circa -0.28% against the greenback to close at USD/MYR 4.4015 last Friday. Meanwhile, the Brent crude oil price rose 1.91% for the week to close at USD122.01/b, says MIDF.

Rakuten's views

Wall Street fell sharply due to May’s inflation figure which jumped to a 40 year high of 8.6% igniting fears of more intense rate hikes by the Federal Reserves.

Therefore, the DJI Average declined by 860 points while the Nasdaq was down by a massive 414 points as the US 10-year yield inched to almost the 3.2% level.

Back home, the FBM KLCI continued with its downtrend and slumped to a YTD low amid the regional weak performances.

"Though a rebound is expected, we reckon market undertone to remain jittery thus anticipate the index to hover within the 1,480-1,500 range today.

"Meanwhile, crude oil palm price fell to RM6,600/tonne as exports are seen to weaken over the immediate term while the Brent crude also fell to US$122/barrel attributed to weaker Chinese demand," says Rakuten.