Data releases cast doubt over US recovery

Investors shifted their focus from geopolitical risks of possible airstrikes on Syria to the question of whether the Fed will taper in September.

Lacklustre pending home sales dropped 1.3% following a decrease of 0.4% in June, and mortgage applications overnight fell 2.5%, their tenth decline in 11 weeks, demonstrating that Americans have been affected by higher mortgage rates.

The weakness in housing means that investors will look more closely at other data releases due tonight - such as the jobless claims and the Q2 GDP revision - to predict the Fed’s next action plan. Q2 GDP is expected to revise up to 2.2% from 1.7%, on stronger exports. As we move closer towards September’s meeting, uncertainty looms with data that questions the recovery of the US economy, and the case for the Fed to remove stimulus.

Commodities

Shifting from a flight to safety, gold and oil abated. The problem is that nobody knows what the scenario will be. The disruption to oil supply is just one of many possible scenarios, although the US is pretty much self-sufficient. For the rest of the world, global growth is at a slower pace with patches of recovery. Whether it warrants Olie - Brent Crude prices at $116 levels is another question. One thing is certain, with crude prices at high levels, it could dampen economic growth, especially in oil-dependent countries such as India.

Gold prices staying above $1400 per ounce has revived its status as a safe haven. While the geopolitical fears proved fleeting, the important factors around gold would be the loose monetary conditions remaining for an extended period of time and the underlying demand from emerging economies.

Indices

US stocks moved up higher, erasing some losses from their previous trading sessions. European stocks are still under pressure, unlike their previous day, while Asian stock futures rallied during the US trading hours. Indonesia’s pension fund that manages $13 billion said in a text message yesterday that they entered into the stock market.

This stemmed some of the selling, with the daily chart reversing early losses, closing 1.66% higher. Bank Indonesia (BI) has called for an extra monetary policy meeting today. After keeping rates unchanged at the start of the month, there’s speculation that BI will hike rates to support a rupiah that has been in free fall, down 13% this year.

Philippines Q2 GDP data will be released today. Like its peers it suffered the ASEAN sell off losing 6.9% this week alone. It was the only ASEAN country with a positive year-to-date return last week, now it is at -1.3%.

GDP is expected to slow to 7.2% according to consensus, from 7.8% in Q1. The balance of payments in July is expected to be healthier; the central bank forecasts a surplus for 2013 at US$4.4 billion, less than half of last year’s US$9.2 billion. The fall in exports on weaker demand from China and other emerging markets is offset by the continued growth in remittances.

Remittances have increased to US$1.91 billion in June from US$1.87 billion in May, above the average of US$740 million from 1989 to 2013 and near its all-time high of US$1.97 billion from December 2012.

Looking at the ASEAN region, the Philippines is one of the better-positioned countries, with strong fundamentals such as current account surplus, potential for real growth and low foreign debt, to handle the repercussions from the removal of stimulus.

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