Asian markets poised for more selling

Global equities ended last week on a weaker note, as persistent sales of commodities and speculation ahead of FOMC weighed on risk sentiments.

Data board
Source: Bloomberg

The surprisingly weak China flash PMI added to worries that there could be further weakness in the Chinese economy, after the patch of recent economic data showed signs of stability. Data on industrial profits would be dissected to look for more clues for where China is heading.

What was also unexpected was that volatility remained pretty low. While the VIX picked up modestly to almost 14.0, it is still below the past year’s average of 14.8. It tells us that the market may not be overly worried about the latest developments, including the commodity rout.

They could be right, or very wrong. My guess is that the selloff in commodity has not reached Armageddon levels, so there is no need to panic. Furthermore, FOMC decision, out on Wednesday (Early Thursday morning for Singapore), is the bigger giant in the room this week.

Clearly, sentiments in gold has shifted towards the bearish side as gold prices were taken to a five-year low. CFTC data showed that further declines may be in the pipeline as more funds and speculators are positioning for selling. What is significant was the fact that this is the first time hedge funds are net short gold futures, since the records began in 2006.

Goldman Sachs also predicted that gold may trade below $1000 an ounce this year, alongside a broader sell off in commodities. While it may be tempting for investors to see ‘value’ in gold pricing at these levels, the downtrend remains really strong and it’s not advisable to catch a falling knife.

Singaporean banks’ earnings eyed

DBS announced a 15% gain in Q2 profits before market open today, as net income climbed more than expected to SGD1.12 billion. Analysts were looking for SGD 1.07 billion. The net interest margin rose to 1.75%, from 1.67% a year ago.

This was helped by a 12% jump in net interest income to SGD 1.7 billion. We could see modest demands in DBS shares today, although the price has run up recently, owning to easing global concerns.

This could cap the topside potential. OCBC and UOB are slated to report their results on Friday, before the market opens. Analysts are forecasting a Q2 net income of SGD 994.75 million for OCBC and SGD 867.50 million for UOB.

Meanwhile, Noble bought back a total of 46.1 million shares last Thursday and Friday, in a bid to stem the latest fall. The band-aid move could help to slow the decline in Noble’s share price but is unlikely to reverse the direction. Given the broader downward pressure on commodities, and a pending review from PwC, the outlook for the commodity trader’s counter looks gloomy.

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