Further consolidation expected in Asian markets

It could be a day of further consolidation in the Asian markets, with the HSBC survey showing China’s manufacturing missed estimates, and talks of tapering in the US back on the table.

Unlike the S&P500, Asian markets have not regained the sell-off from a couple of months ago. With the S&P500 close to the 1700 mark, there’s a sense that the rally is limited, with valuations close to the highest level at 16 times. This will hamper further recovery in the Asian markets.

Gold prices have taken a beating after consolidating at the $1340 resistance level we set on 22 July, which was the 23.6% Fibonacci retracement level since its peak in September last year. We expected two possible scenarios and one has played out - it is retracing to $1300. If this level holds and the dollar weakens, we will see gold moving back up again. For the time being, gold investors will remain skittish until we receive further clarity from the Fed to dispel tapering talks.

Copper is swinging between gains and losses, with bullish and bearish comments coming through the newswires. Southern Copper CFO, Raul Jacob, said the company expects demand to exceed the GDP growth rate of 7.5% in China, yet Goldman Sachs expects surpluses to double in two years.  We maintain our view that copper has found a bottom and is trading in a channel. It touched our resistance level of $325 mentioned on 23 July and is currently trading on the support level. We will watch price action closely for any breakouts in either direction.

WTI is consolidating at our support level of $105 mentioned in yesterday’s report. A combination of factors, including China’s weak data, higher-than-expected US output and sellers at these levels will see this level tested. A light data day from Asia could mean tight, range-bound trading for WTI today.

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