Asian equity markets closed broadly lower on Thursday following an unexpected interest rate hike by the Chinese central bank hours after the Fed raised interest rates.

Negative sentiment came through Hong Kong and China market as PBOC unexpectedly raised its 7-day repo rate as well as mid-term lending facility rate by 5bps. Although the magnitude is small, relatively, but this sent markets a strong signal that its future monetary policy will be tightening biased and this is negative to the stock market.

The US dollar rebounded mildly overnight as both ECB and BOE kept their interest rate unchanged while maintaining a positive economic outlook towards 2018. The ECB set the inflation forecast for 2020 at 1.7%, which came below market expectation of 1.8%. Central bank governor Mr Draghi expressed willingness to take ‘ample degree’ of stimulus in order to get inflation back to the target level of 2%.

Asian markets pulled back yesterday as PBOC’s unexpected rate hike sent nerves sentiment across Asia. Weakness came through the Shanghai Composite and Hang Seng, in which ongoing profit-taking activities dominating market direction. Shanghai Composite slide 10 points or 0.32% to 3,292 points Thursday and this bearish sentiment could prevail as market continue to digest the impact of rate hikes which will lead to higher lending costs and tightened liquidity. 

Singapore’s benchmark indexSTI lost 30 points or 0.9% with the three local banks and the Jardine group among the worst performers. The Singapore stock market is lack of fresh catalysts as we are getting close to the year-end, and profit taking activities kick off following astonishing rally this year, particularly among bank shares. As I mentioned several times, Singapore bank’s dividend yield has dropped to their lowest level in nearly a decade, which serves as a warning signal that current valuation is rich and such low yield is no longer attractive to value investors.

Technical Analysis:

Gold - Cash

  • Momentum Indicator DMI has peaked and started to shrink, which suggest a turnaround of bearish trend
  • Trend indicator 10-Day Simple Moving Average and SuperTrend (10,2) both sloped downwards, suggesting the near term trend is bearish
  • Immediate support and resistance level could be found at 1,238 and 1,261 area respectively

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