In the past week, the markets priced in a definite war with Syria and lost momentum when the UK voted against it. Last night, it was clear market participants have to take this into consideration, with Speaker of the House John Boehner and Majority Leader Eric Cantor making this possibility an imminent concern. The uncertainties caused a flock towards US-dollar assets while investors process the slow grind towards a strike against Syria and the possible repercussions.
US data have been mixed. Given that this is a weak recovery propped up by QE, the question is whether the recent releases are good enough for the Fed to start tapering. Manufacturing surprised with an expansion in August, to its highest level in two years. The ISM index rose to 55.7 from 55.4 a month earlier. Factory demand for automobiles and construction materials are keeping the pace of recovery in manufacturing.
A separate report showed construction spending also increased in July to its “strongest since June 2009”, according to the Commerce Department. US stocks reacted with a better close after trending down most of the day. The S&P 500 closed up 0.4% to 1639. Technically the index is held up by a strong support trend line. We see a strong possibility of a breakout from this support at tonight’s trading session.
Tonight, a slew of data is expected, notably Challenger job cuts and the Beige Book. These would provide a clearer picture of the labour market ahead of the nonfarm payrolls. The US joins China and Europe in recently released, better data on manufacturing, signalling growth, albeit sluggish. In contrast, India and Southeast Asian economies continue to struggle.
In the Asian space, the Hang Seng has gained our attention as the index weathered the broad sell-off better than the rest, and staged a strong comeback in the past two trading sessions. Unlike ASEAN economies, companies listed on the Hang Seng have exposure to Chinese economies.
The better-than-expected manufacturing data in the start of the week reassures investors that the threat of a Chinese slowdown has dissipated. China’s President Xi Jinping said the slower growth is by choice and that “the growth rate could have been higher had we continued with the past development model”.
We expect prices to consolidate before a break to the upside with immediate support at 21,500, which is also the 28.2% Fib retracement from 23 June.