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Minutes and buying time

As far as central bank minutes go, there are quite a few this week, the FOMC minutes are arguably the most important to watch. 

Federal reserve building
Source: Bloomberg

Although the Fed is not dismissing chances of a rate lift-off in June, it is a foregone conclusion that they will not do so, at least in the eyes of the market.

In fact, they may even be doubting it will act in September with the rising expectations of a delay towards the end of the year. Mixed economic data in April decreased prospects of a strong rebound in Q2 growth.

Should the minutes reveal more worries regarding the US economic strength, we could see fresh pressure on the greenback, while market focus will immediately shift to Fed Chair Janet Yellen’s speech on US economic outlook this Friday.

Apart from the minutes, this week is jam-packed with macroeconomic readings that may rationalise the cautious moves seen at the start of the week. With investors seemingly uncertain of how the key macro events will play out, Asian markets saw a mixed trading session.

Two-track Chinese markets

The latest release of China’s home prices underscored the subdued property sector although there are positive signs of a bottoming out of the price decline. Furthermore, recent government measures, including loosening tax rules and down-payment requirements alongside rate cuts, could also help cushion the fall. Nonetheless the current oversupply of houses suggests that any meaningful recovery in the property sector would be difficult for some time.

The Shanghai Composite remains under pressure, which naturally begs the question whether the pullback is due to a catch-up to fundamentals. The FTSE China A50 has broken below its 20-day moving average and is slipping towards the 50-day moving average. Additionally, there is the slew of IPO due over the next two days where the market reckon may drain liquidity out from existing equities.

Tellingly, waning trading volume may underline the heightened caution ahead of key event risks. But none of this appears to affect Shenzhen shares (SZCOMP) which continue to pull in the opposite direction from its Shanghai counterpart and closed above 2500, lifted by a rally in ChiNext.

Investors not inspired by export growth

The STI continued to move in a holding pattern with mild gains in banks offset by declines in telecom and industrial counters. A surprise growth in NODX exports at 2.2% versus market expectation of a 5% drop was unable to rouse buying interests, investors remained cautious ahead of key macro events.

Meanwhile, USD/SGD is supported above 1.3200, helped by broader dollar rebound as euro came under pressure on Greek concerns. However, should the Fed minutes show a much less hawkish stance, traders could start buying SGD on account of fresh USD selling.

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