Fed cut concerns for markets

It will be a week watching the balance between economic data and central bank perceptions for markets.

Jobs data pressure

Friday’s labour market statistics had been one to surprise in the headline payrolls component, throwing a curve ball for a market rife with Fed cut expectations. While headline payrolls remain broadly weak, as seen in the 3-month moving average chart below, the surprise at 224k had been a strong reading against the market’s 160k consensus and the revised 72k disappointment in May. This had been one to undermine the market’s conviction for the upcoming Fed cut even as both the average hourly earnings and unemployment rate for June reflected softening labour market conditions. According to the CME FedWatch tool, we are now looking at a market view of a sure-fire cut of only 25 basis points compared to the previous inclination towards 50 basis points.

Correspondingly, the Fed-attuned Wall Street saw to pressure with most sectors on the S&P 500 index in red while the likes of the financial sector charging ahead on Friday’s session. Look to a similar trend cutting across Asia markets going into the fresh week. The attention will be on the Fed this week with June’s Federal Open Market Committee (FOMC) minutes and Fed chair Jerome Powell’s testimony to watch. With the minutes being relatively backwards looking, we should accord greater weight to Fed Powell’s words post the jobs data. The potential for Fed Powell to position less as dovish after the strong hiring could further unwound the market from the rife expectations, one to watch for market implications.

Source: Reuters, IG

On FX, the US dollar index can be seen reacting towards the data with the jump past the uptrend support once again. This nevertheless marks a lower high should a reversal be seen, one to watch with prices now at an inflection point. Key data in the week ranges Thursday’s US CPI data in addition to the Fed elements. As told above, there are risks that Fed Powell may take a less as dovish tone this week that could shift prices into a consolidation phase from the current downtrend.

Source: IG Charts

Soft start to the week

Asia markets contemplating the diminishing likelihood of consecutive cuts is expected to trade softer going into the start of the week. With the Fed minutes and Fed Powell’s testimony this week, it will be one watching the balance between the economic performance across US to Asia and the corresponding central bank outlook from the Fed for trade this week.

For the local STI, support can be found at 3330 and resistance at the 3400 level. This rangebound trade may well sustain awaiting leads between the abovementioned forces. The advance estimate of Singapore’s Q2 GDP will be the key local release to watch into the end of the week.

Friday: S&P 500 -0.18%; DJIA -0.16%; DAX -0.49%; FTSE -0.66%