Asian equity futures are positioned to open higher following a strong US trading session last Friday as optimism over Republican’s ambitious tax overhaul to be passed by this week sent US stocks and shares to record highs. 

The tax bill will permanently bring down US federal corporate tax to 21 percent from current 35 percent. Companies with relatively high tax rates and mainly US-based revenues will gain most from the tax reform, these includes financials, oil refiners, industrials and airlines. We shouldn’t be carried away by this major breakthrough, however, as the S&P 500 index has soared over 22% year-to-date which partially priced-in the positive impact of tax reduction to earnings.

The US dollar rebounded for a second day, as the legitimation of the new tax code will mark President Trump’s first major achievement since he took over the White House. The US dollar Index, which slumped as much as 12% since his inauguration, has finally found some ground. EUR/USD slided for a third day to 1.175 area. The immediate support and resistance level could be found at the 1.171 and 1.183 area respectively. USD/JPY has tested key support at 112.0 area and since rebounded. Its immediate resistance levels are at 112.8 and 113.1 respectively.

In Asia, Hang Seng Index closed sharply lower last Friday due to heavy profit-taking activities as market digested the impact of PBOC’s unexpected tightening measures. This, however, is likely to be underpinned by favourable sentiment coming across US market over the weekend. Technically, the Hang Seng Index is facing some resistance at 29,135 area (161.8% Fibonacci Extension) and its next major resistance can be found at 30,000 area.

Singapore’s benchmark indexSTI lost 19 points or 0.55% last Friday with three local banks and telcos among the worst performers. The Straits Times Index is likely to consolidate around 3,400 – 3,470 area until fresh catalysts kick in. 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.

Singapore’s largest telecommunications company – Singtel, is on ex-dividend day today and therefore its share price declined S$0.12 or 3.2% as the time of writing. This corporate action dragged down the STI index by about 0.29% or 10 points.

Technical Analysis:

DBS Group

  • Trend indicator 10-Day Simple Moving Average and SuperTrend (10,2) both sloped upwards, suggesting the near term trend is bullish
  • Immediate support and resistance level could be found at 24.30 (161.8%) and 25.26 (200%) area respectively​

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