We hold the view that any tapering done will be gradual, and we believe the Fed would like to see this happen. The question is on the delivery; it is a fine art which Fed chairman Ben Bernanke will need to perfect. Until next week, investors are relying purely on economic releases and earnings.
We expect a similar scenario in Asian markets. We are seeing Asian governments taking action to stem impact of the slowdown in their economies. World trade volume shows exports in May fell 0.3%, published by the CPB Netherlands Bureau for Economic Policy Analysis, while China had their worst month since the financial crisis with exports falling 3.1% year-on-year in June. This is why we see China continuously make headlines on a daily basis with its efforts to reshape its economy. Today we see their efforts to phase out overcapacity in the manufacturing sector but we don’t expect to see these headlines having much impact on their equity markets.
This morning, we are expecting to see some life in the Nikkei after June’s CPI rises beat expectations, rising 0.4% versus 0.3% estimated. The Nikkei has been underpinned by investor’s waning confidence on Abenomics - today’s data should give it some momentum.
Singapore’s STI held up nicely despite consolidation yesterday. It is trapped in a channel, with yesterday’s close near its support. Any movement out of 3280 will be positive; we remain bullish on the STI.
The dollar’s retreat has provided support for commodities including gold, copper and crude. Gold prices held steady overnight and is still trading within the range we expect. As long as it doesn’t breach support of $1300, we stay on the contrarian camp and remain bullish on gold.
WTI has consolidated to the support level we prescribed ($105) in our report on the 24 July, better economic indicators in both the US and Europe as well as disruptions to supply are providing support to crude’s recent rally. US durable goods surprised on the upside, with a revised 5.2% in May and business confidence in Germany showed an uptick to 106.2 from 105.9 and UK’s GDP rose 0.6% from Q1.
Copper prices rebounded overnight and with the weakened dollar and infrastructure support China is providing to grease the economy, we expect copper to remain a commodity in demand. Technically, copper prices are trading in the range we expect, for it to move higher it needs to stay above $320 convincingly and breach the resistance of $325 as stated in our 23 July report. Support level is at $305.