Yellen’s words spark dollar revival

Asia looks to end Friday in varying performance, despite a clear hawkish stance from Fed chairperson Yellen’s speech.

Public Charts in business district
Source: Bloomberg

China closed lower, with concerns about the growth outlook and capital outflows weighing on the minds of market participants. Additionally, low volumes were a drag on market performance. Trading volume in the mainland and Hong Kong markets were waning after the recent stock rout in August.

Volumes on the Shanghai Composite were dropped 24% below the 30-day average. The falling volume is indicative of the slew of authorities’ measures to stabilise the local markets. One of the clearest signals is the considerable decline in margin lending, which was one of the major factors rocketed Chinese equities in the first half of this year. Meanwhile, the clampdown in the futures markets may also have spooked investors in the spot market. 

The Nikkei saw an interesting trade today. Initially, bears took the index below 17,500, with expectations of a continuation of Thursday’s losses after a five-day long weekend. However, buyers emerged at the sub-17,500 region, and lifted the Nikkei by 1.8% on the day. Bloomberg noted that many analysts remained bullish on Japanese equities.

Much of this bullishness hinged on confidence in corporate earnings and rising expectations of additional BOJ easing. Today’s mixed inflation data also showed that consumer prices are struggling to pick up, which would gave the ‘easing’ camp more ammunition.

Indeed, there has been some discussion on how the BOJ can increase its quantitative and qualitative easing (QQE) programme, given that it is already buying the bulk of the government bonds each month.

As I mentioned earlier today, there is speculation that any expansion of the programme will entail using other policy tools, such as cutting the interest rate on deposit that banks keep at the central bank or purchasing municipal government paper instead of national bonds.

While Asian equities were pulled in different directions, the bias in the currency markets is rather clear. Dollar is back in vogue after Yellen’s speech. Implied probability of a December rate hike has risen to 49%. The dollar index extended higher above 96.50 during the Asian session. As a result, USD/JPY rose further to within whiskers of the 121 level. EUR/USD slipped below 1.1150. Aussie and Kiwi also weakened -0.2% and -0.5% respectively.



Given the weak signals from the US markets as well as the return from a one-day holiday, bears have had the upper hand right after the opening bell. The STI dropped 1% to 2816, but trimmed losses shortly after.

The index however remained in negative territory throughout the session, trading between 2830-2840 as Chinese markets headed south, marred by low volume. In addition, Singapore’s industrial output for August fell more than expected at 7% y/y, versus estimate of 5.3%, dragged by lower production of electronics and pharmaceuticals.

The STI is expected to steer clear of the August lows of 2808, ahead of the strong support at 2800. From a technical perspective, the index is clearly still in a downtrend in the longer term, although we are seeing signs of consolidation within 2800-2950 for most of September.

There is also some focus on the October policy review by the Monetary Authority of Singapore (MAS). Growth concerns will likely take the front and centre for the MAS. Downside risks for economic activity are seen from a China slowdown due to structural reforms, weakness in global trade and Singapore’s tighter immigration policies.

Of course, not everything in Singapore that falls is bad. The 3hr air pollutant standards index (PSI) fell considerably to 104 as of 4pm, from a ‘hazardous’ level of 341 at 5am.


*For more timely quips, you may wish to follow me on twitter at

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