Saturday, January 31, 2009
Friday, January 30, 2009
As indicated by A, despite an attempt to rebound from early losses, the KLCI is still resisted by the Bollinger Middle Band dynamic resistance. Other resistance for the KLCI is at 887 Fibonacci Retracement while the supports are still at 869 and 853 Fibonacci Retracement.
As indicated by B, total market volume increased 3.1%, and still, the volume is below the 40-day VMA level, suggesting that the market participation is still relatively low. Therefore, the KLCI is likely to consolidate with insufficient market participation.
The Chinese, who own the U.S. now, are becoming slowly more intolerant of the profligate and wasteful spending. China’s Premier Wen Jiabao blamed the United States’ debt-financed spending binge and blind pursuit of profit for the global financial crisis in a speech at the World Economic Forum on Wednesday.
“Inappropriate macroeconomic policies in some economies and their unsustainable model of development, characterized by prolonged low savings and high consumption,” was first in a list of reasons Wen cited for the crisis.
This was a clear reference to the United States, which has a savings rate below zero and relies heavily upon Chinese buying of U.S. debt to finance its huge current account deficit of 4.8 percent of GDP and growing.
But Wen chose not to address directly a brewing row over the value of its currency — an issue closely tied to U.S. debt issuance.
The new U.S. Treasury Secretary Timothy Geithner last week surprised China by branding it a currency manipulator for depressing the value of the yuan to support its exports. Geithner was joined by the International Monetary Fund, which said the Chinese yuan was under valued.
This disappointed Beijing since the previous administration avoided the term for years, aware of U.S. dependence on China to buy its debt, and instead pursued dialogue. In his speech, Wen also listed excessive expansion of financial institutions in the “blind pursuit of profit,” the failure of regulation, lack of discipline by ratings agencies, and the spread of derivatives for the financial turmoil that has sent major economies tumbling into recession.
To tackle the crisis, Wen threw his weight behind efforts in the Group of 20 major economies to reform the financial system by tightening regulation and oversight. In particular, Wen supported strengthening the supervision of major reserve countries, a role given to the IMF but never effectively utilized.
Wen travels to Berlin to meet with German Chancellor Angela Merkel on Thursday as part of an European tour to discuss cooperation in solving the financial crisis.
MEASURED OPTIMISM ON CHINA
On the outlook for China, Wen struck a tone of measured optimism. He said there were early signs that the economy may have started to turn around in late November. He pointed to a marked increase in lending and activity at ports. “To be honest, it will be a tall order to achieve a growth rate of 8 percent in 2009, but I still retain the conviction that we will achieve this,” Wen told business and political leaders in his keynote speech at the four-day gathering.
China, the world’s third-largest economy, has slowed much more abruptly than expected in the face of the financial crisis, as wilting U.S. and European demand have slammed the country’s export sector.
Annual economic growth slowed to 6.8 percent in the fourth quarter of 2008, from 13 percent in all of 2007. The 9 percent pace for 2008 was the slowest in seven years; growth slowed despite five interest rate cuts in the second half of the year.
That has muted hopes that China could help pull the global economy out of the current slowdown.
Expect lower CPO price volatility in 2009. We expect CPO price to show less volatility in 2009 and we predict a price range of RM1,200-2,400 per tonne. The higher end of the trading price range assumes supply shortfalls due to unfavourable weather conditions while the lower end of the price estimates assumes that CPO price gets some support near its cost of production should global edible oil stocks remain ample and there is further unwinding of funds out of the commodity markets if the financial crisis deepens. The breakeven palm biodiesel price range based on our predicted CPO price range is US$49-94 per barrel, assuming no subsidies. To recap, CPO price hit a peak of RM4,300 per tonne and a low of RM1,400 per tonne in 2008. From peak to trough, the price difference was a staggering RM2,900 per tonne in 2008.
Rationale behind CPO price trading range forecast. Taking into account lower palm oil tax and the declining crude oil and fertiliser prices, we estimate that the breakeven average cost of production for CPO is around RM1,200 per tonne and have set the lower end of our CPO price band at that level. We believe this level could be reached if weather conditions are ideal and demand is weaker than expected due to deteriorating global economic conditions and a low crude oil price environment. We have used RM2,400 per tonne as the upper end of the trading range for CPO price as we believe this level will be sufficient to entice planters to resume planting and fertiliser input, which will help boost supplies. We think that this selling price will lead to a positive supply response in the current economic conditions. This is because farmers will be making a hefty profit margin of around 100% at RM2,400 per tonne.
We are also of the view that at this price level, biodiesel will not be economically
viable based on our crude oil price assumption of US$60 per barrel and the
Indonesian and Malaysian governments may scale back their biofuel plans which are intended to support CPO price. Also, the replanting incentives may not attract good take-up rates. Lastly, we feel that the high price may lead to demand destruction for CPO amid the global economic slowdown.
Average CPO price projected to decline 42% in 2009 before recovering in 2010.
There is no change to our CPO price assumptions of RM1,600 per tonne (US$435) for 2009 and RM1,900 per tonne (US$530) for 2010. Our price forecast for 2009 represents a 40% decline from the RM2,773 per tonne achieved in 2008 and is underpinned by slower growth in demand for edible oils, declining crude oil price and less speculation by funds in the commodity market. For 2010, we expect CPO price to increase by 19% to RM1,900 per tonne as measures put in place by the governments of Malaysia and Indonesia in the previous year will start impacting palm oil supply and boost demand in a more meaningful way. Our CPO price forecasts assume normal weather patterns in major planting areas.
Long-term average CPO price of RM2,000. We carried out a rough analysis of the likely long-term level for CPO price by comparing the RM1,310 per tonne average for 1991-2005 before the emergence of biodiesel against the average cost of production of RM700 per tonne. The gross profit margin for the 15-year period worked out to be around 47% or RM610 per tonne. Applying the same profit margin of 47% to the new cost of RM1,200 per tonne, we get a new long-term average of RM2,264 (US$629) per tonne. Applying the same absolute gross profit margin, the long-term average would be RM1,810 (US$502) per tonne. We work with profit margins as we believe this will be the key to enticing farmers to invest long term in the palm oil sector to cater for future global consumption. We cross-check this with the breakeven price for biodiesel without subsidy at our long-term crude oil price of US$90/barrel. This alternative methodology gives us a price of RM2,100 per tonne. Taking the average of the potential long-term average CPO price based on the above methodologies, we arrived at a long-term average price of around RM2,000 (US$555) per tonne (fob basis).
FKLI Market Outlook: 30/01/09
The KLCI opened marginally higher following overnight gains in Dow markets. The bulls and the bears were in a tussle whole day but trading volume remained thin (284mil), slight increase from the previous day. At the closed, KLCI closed 3.53 pts (+0.40%) higher at 883.16. We believe that this is only a minor rebound from the rising support line at 880. There is a slim probability it could rebound to 900; nevertheless any rebound should be seen as a chance to sell into strength. Asian markets were off to a good start too. Japanese N225 gained +144; +1.79% on efforts from Central Banks globally would help unlock credit markets. The HSI closed climbed 4.58% or +575, played catch up following a 3-day break for the Chinese New Year. STI managed to hold on to its opening gains. At closed STI remained almost unchanged, gaining only 0.64pts or 0.04%. It was choppy and volatile days for FKLI. FKLI swung between a high of 890 and low of 872.5. At closed, the spot month settled at 876.5, down 10.5 pts. The basis shrink to 7 pts discount from 8 pts premium the previous day. The month end roll over activities contributes (83.5%) bulk of the volume. Technically, the FKLI continued to stay below its support major MA, and this could be seen as negative. The FKLI needs to overcome its 21-day SMA at 900 for the bulls to gain control. We continue to expect the index to be choppy today. Investors could adopt a sell-into-strength strategy with resistance at 890. Support is at 870 and 865. For today we expect the market will under pressure, tracking a sharp drop in Wall Street (-226, -2.7%) last night on weak economic data (especially unemployment rate which reaching record high) and earnings result. We maintain our earlier call selling on any rebound due to lingering recession worries.
(Reminder: The market will be closed on Monday (2nd Feb) for Federal Territory day.)
Thursday, January 29, 2009
Composite Index Daily Technical Analysis 29/01/2009
As indicated by A, the KLCI opened higher as the regional markets are mostly higher, but the KLCI was precisely resisted by the 887 WinChart Automatic Fibonacci Retracement resistance, which is also the Bollinger Middle Band dynamic resistance. Therefore, the 887 resistance remains intact while the supports are still at 869 and 853 WinChart Automatic Fibonacci Retracement.
As shown on the chart above, the Bollinger Bands Width is still contracting, suggesting that the KLCI is still in its consolidation. Still, breaking above the Bollinger Middle Band is a must for the KLCI, if the KLCI was to regain its positive position.
As indicated by B, total market volume increased 34.6%, but still below the 40-day VMA level. Therefore, this shows that the overall market is still lightly participated, and the KLCI is less likely to pick up any strength without sufficient market participation.
As circled at C, the Stochastic is now breaking above 30% level, leaving the short term bearish region. This is a signal suggesting a technical rebound for the KLCI. However, in order to signal a bullish signal, the Stochastic would have to break above 70%.
Despite the increased of volume as well as some gains on Thursday, it is still considered as a technical rebound for the KLCI is still resisted by the Bollinger Middle Band. In short, if the KLCI should break above the Bollinger Middle Band with significant increased of volume, chances for the KLCI to break away the bearish biased movement would be higher.