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Markets pause on inflection point

The US jobless data that came through overnight got everyone excited, for a minute.

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Then there were announcements from the Labor Department about computer glitches and two states that didn’t report, pulling down the numbers to an artificial low since April 2006. Pinning the blame on computer glitches spurred debate on the credibility of the unemployment data. The investment community has been focused on the top-line unemployment rate of 7.3% when it’s down to the declining participation rate at 63%, which is a 35-year low.

Bernanke on tapering completing

The question is whether unemployment is dropping because more people are working or because more people are dropping out of the work force. The challenge for the Fed increased following Bernanke’s initial statement that the Fed will complete its tapering when the unemployment rate falls to 7%.

We are not too far from that and it’s quite possible that we will reach the target by December, with the tapering program yet to even start. Retail sales - the last piece of data investors will focus on - are expected to be tepid, at 0.5%. One of the factors pushing US stocks leading higher is the announcements of buybacks. This points to the realisation that sales growth and earnings growth are challenging at this point.

There’s a need for catalysts as we move on to next week’s main event – the FOMC. Whatever Bernanke states on where he thinks the economy is - and his plans for going forward - will be watched closely.

The US equity markets were mostly unchanged. Asian ETFs retreated over 1.5% on average for China, India, Malaysia, the Philippines, Japan and Indonesia as investors take profit off the table. Foreign inflows into Asian equities (in India, Indonesia, South Korea, the Philippines, Taiwan, Thailand and Vietnam) more than doubled in the week ended 11 September, rising to $5.8 billion from $2.2 billion in the previous week, according to Bloomberg data.

Commodities

Gold suffered the worst sell-off in nine weeks as the risk premium of Syria diminishes. The precious metal was largely ignored once the military strike became less likely to happen, reversing over 6% after hitting a high of $1433 on 28 August. The catalyst for the flight to safety has evaporated and further consolidation could be on the cards unless there are further developments.

Crude, on the other hand, has priced in the possible breakdown in the diplomatic resolution while US Secretary of State John Kerry meets with Russian Foreign Minister Sergei Lavrov to discuss plans on Syria’s handover of chemical weapons. Futures for both WTI and Oil - Brent Crude rose 1%.

Next week’s key events in Asia include Singapore’s trade data (17 September), New Zealand’s trade data (19 September), Japan’s trade data (19 September) and India’s RBI policy meeting (20 September).

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