Straits Times Index is likely to climb up from June to early September

SINGAPORE: The Straits Times Index (STI) ended May on a strong note, reaching its highest point for the year at 3,333, a 17-point increase from the previous week.

With the 50-, 100-, and 200-day moving averages remaining positively aligned and quarterly momentum rebounding from near neutral levels into positive territory, STI is likely to climb gradually further during the northern hemisphere summer, according to a report from The Edge Singapore.

Market trends and expectations

The STI is expected to continue its upward trend, though some fluctuations are anticipated. The immediate upside is 3,350, while support has been adjusted to the recent congestion zone around 3,300.

Following the breakthrough above 3,250, the eventual target is set at 3,450. However, concerns persist about elevated US risk-free rates, particularly the 10-year treasury yield.

Over the past three years, the inversion between the 2-year, 10-year, and 30-year treasury yields has caused market jitters, suggesting potential economic downturns.

Despite this, US markets have reached new highs this year. The 30-year treasury yield is currently higher than the 10-year yield, close to the 5-year yield.

This technical pattern suggests that the 10-year (at 4.56%) and the 2-year (at 4.95%) yields may struggle to rise further.

Federal Funds Rate Outlook

Market watchers expect a cut in the Federal Funds Rate (FFR) in the third and fourth quarters of this year.

This expectation continues despite the Federal Open Market Committee (FOMC) stating that rates might remain elevated until there is clear evidence that inflation is moving towards the 2% target.

According to the UOB Global Economics and Market Research in a note titled Central Bank Watch:

“Our view remains unchanged that the Fed will keep its current FFR steady at 5.25-5.50% and maintain this terminal FFR level for longer beyond June 2024 where we factor in 50 bps of rate cuts for 2024 (i.e. two 25-bps cuts, one each in Sep 2024 and Dec 2024).” /TISG