Fed cut concerns for markets
Asia markets are expected to find a soft start to the week after seeing Wall Street pullback on Friday from lowered expectations of a Fed cut.
It will be a week watching the balance between economic data and central bank perceptions for markets.
Jobs data pressure
Friday’s labour market statistics had been one to surprise in the headline payrolls component, throwing a curve ball for a market rife with Fed cut expectations. While headline payrolls remain broadly weak, as seen in the 3-month moving average chart below, the surprise at 224k had been a strong reading against the market’s 160k consensus and the revised 72k disappointment in May. This had been one to undermine the market’s conviction for the upcoming Fed cut even as both the average hourly earnings and unemployment rate for June reflected softening labour market conditions. According to the CME FedWatch tool, we are now looking at a market view of a sure-fire cut of only 25 basis points compared to the previous inclination towards 50 basis points.
Correspondingly, the Fed-attuned Wall Street saw to pressure with most sectors on the S&P 500 index in red while the likes of the financial sector charging ahead on Friday’s session. Look to a similar trend cutting across Asia markets going into the fresh week. The attention will be on the Fed this week with June’s Federal Open Market Committee (FOMC) minutes and Fed chair Jerome Powell’s testimony to watch. With the minutes being relatively backwards looking, we should accord greater weight to Fed Powell’s words post the jobs data. The potential for Fed Powell to position less as dovish after the strong hiring could further unwound the market from the rife expectations, one to watch for market implications.
Source: Reuters, IG
On FX, the US dollar index can be seen reacting towards the data with the jump past the uptrend support once again. This nevertheless marks a lower high should a reversal be seen, one to watch with prices now at an inflection point. Key data in the week ranges Thursday’s US CPI data in addition to the Fed elements. As told above, there are risks that Fed Powell may take a less as dovish tone this week that could shift prices into a consolidation phase from the current downtrend.
Source: IG Charts
Soft start to the week
Asia markets contemplating the diminishing likelihood of consecutive cuts is expected to trade softer going into the start of the week. With the Fed minutes and Fed Powell’s testimony this week, it will be one watching the balance between the economic performance across US to Asia and the corresponding central bank outlook from the Fed for trade this week.
For the local STI, support can be found at 3330 and resistance at the 3400 level. This rangebound trade may well sustain awaiting leads between the abovementioned forces. The advance estimate of Singapore’s Q2 GDP will be the key local release to watch into the end of the week.
Friday: S&P 500 -0.18%; DJIA -0.16%; DAX -0.49%; FTSE -0.66%
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
Please see important Research Disclaimer.
Take a position on indices
Deal on the world’s major stock indices today.
- Trade the lowest Wall Street spreads on the market
- 1-point spread on the FTSE 100 and Germany 30
- The only provider to offer 24-hour pricing
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.