Given the overnight performance by US markets, we should expect further gains in today’s trading sessions. The exit from emerging markets in late May is almost all but forgotten given the gains in the past week.
South-east Asian equity markets have regained some of their losses. The Philippine Index appears to be in better stead compared to Indonesia, as it trades above its long-term moving averages; local fund managers added equity exposure from 25% to 30%, which is equivalent to $2.2 billion, into their portfolios during the sell-off.
Singapore’s STI had its largest one-day gain with 287.5 million shares exchanged, while China’s CSI 300 had the biggest advance, adding 4.6% to 2326, with the highest volume traded seen since 2010 at 7.27 billion. Could this mean we will see the end of Asia’s worst-performing market?
Investor sentiment has shifted from fears of when the Fed will taper to when the central bank will add further stimulus, and an expectation that China’s Premier Li Keqiang will tackle this slowdown with structural changes.
This is providing support in the market on the premise that China will avoid a 'hard landing', especially in the case of industrial metals and commodity producers. copper prices appear to have found a floor after touching a high of 441 in July 2011 to its current 318.65 level.
Looking back at copper’s super cycle from 1930s to today, real prices moved higher during World War I, the Japanese economic miracle (1950-1970) and finally from China’s insatiable appetite for raw materials which started in 2000. The question is whether population growth in developing countries will support this cycle given the slowdown in China.
Gold is finally getting some attention with a run up the past five days after dipping below $1200 an ounce, touching a high of $1298 yesterday. Further liquidity from the Fed is making this cash alternative an attractive again, while the dollar index (DXY) plunged from a three-year high in two trading sessions, losing 2% to 82.76, which halted the flight to dollar assets.
Oil - US Crude is the only asset class reacting to US jobless claims, retracing from a high of $107.45 to $104.42. The short-term support level remains intact at $102. WTI has gained 6.6% and Oil - Brent Crude 4.2% in the past two weeks. US jobless claims increased by 16,000 to 360,000.
Ahead of the open, we are calling the STI higher given the better-than-expected Q2 GDP which expanded at 15.2% versus an estimated 8.1%, and bullish overtones in the equity markets. Our immediate support level is at 3200 and immediate resistance level is at 3271 (50-day moving average); closing above this level will be positive ahead of next week’s earning season.