US equities thrived in a state of consolidation before the Federal Open Market Committee (FOMC) meeting decision whilethe US dollar had managed to stabilise after substantial profit-taking from last week. The USD index itself was seen bouncing from a low of 101.01 overnight and traded at 101.40 levels into Tuesday morning, in part due to the support from GBP/USD and EUR/USD retreats. The UK parliament had granted PM Theresa May the power to officially initiate the country’s departure from the EU, sending the currency pairs moderately lower.
Meanwhile, US fixed income continue to be sold with 2-year and 5-year treasury yields near record and the 10-year itself breaking above last Friday’s high to 2.62%. Both the markets were seen reacting in anticipation of the imminent rate hike.
The progressive improvement in both labour market conditions and lift in inflation rates in the US certainly validates the Fed’s move this week. Questions on both extremes have been widely discussed. On one hand, the market ponders a surprise hold, in which, massive unwinding of positions could take place with the hike already priced in. On the other hand, concerns have also been paid to an acceleration in the Fed’s path to normalisation, where the likelihood of four fed hikes have been raised, up from the current projection of three.
The immediate reactions is likely to be seen in the USD and upsides towards December’s high on the USD index may be eyed.
Asian equities ticked up at the start of the week, the MSCI Asia Pacific index gaining 0.8% despite the oil gloom. The positive prints appear to be sustaining into Tuesday morning with gains clocked on most indices. The highlight this morning had been the set of Chinese data which came in with mixed performances.
Certainly, the year-to-date (YTD) growth of retail sales between January and February had disappointed at 9.5% year-on-year (YoY), falling to the lowest rate since end-2003. Markets had however reacted with a shift of focus to the industrials sector as the industrial production and fixed asset investments from China outperformed consensus.
Zooming in to the local Singapore market, the Straits Times Index had been seeing prices supported since the start of the month, still trading at 3150 levels as of Tuesday. The real estate sector had evidently been at the top-end pushing up the index following last Friday’s announcement of property curb eases. This had more than offset the weight implicated by the sustained decline in crude oil prices at the start of the week.
The 3150 level has formed a strong resistance for prices. Eye a clear break above the level with the index still likely to be influenced by the Fed FOMC conclusions in the latter half of the week.
Yesterday: S&P 500 +0.04%; DJIA -0.10%; DAX +0.22%; FTSE +0.33%