The after-party effect

The FOMC after party may have left many in a daze, but Singapore is just kicking off the city’s party of the year – it's Formula One race weekend.

The Dow Jones and S&P 500 were mostly unchanged, but the NASDAQ continued to close higher, hitting levels last reached in 2000. Investors are weighing up where we go from here given the all-time highs in US bourses.

Measure of caution

Looking at the S&P 500, talk of low valuation was the attraction for investors to enter the market when PE was at 12 in 2009. Today, 134% later and with the valuation close to 17, there is a measure of caution. Investors would like to see a fundamentals-driven marketplace. The concern has been the top-line contraction of companies and analysts preparing clients ahead of the earnings season in October, with expectations that revenue will be flat.

On the economic front the initial jobless claims were better than expected, with 309,000 versus the 330,000 expected, but the US Labour department is still working through the backlog of the two states that did not report. The highlight was the surprisingly strong numbers from the Philadelphia Fed’s business outlook index, which jumped to a March 2011 level of 22.3 from 9.3 in August.

There were some strong numbers with the employment index increasing from 3.5% to 10.3%, and new orders jumping from 5% to 21%. Home sales jumped to 5.48 million from 5.39 million in July as homeowners locked in lower mortgage rates, although this is expected to slow given the jump in the 30-year yield from the low of 3.4% in July to the current 3.8%.


In Asia, it’s a big day for RBI governor Raghuram Rajan as the central bank will review policy today. He is expected to leave the benchmark repurchase rate unchanged at 7.25%. Since coming into office, Mr Rajan has stabilised the sell-off in the rupee with traders unwinding their short positions. The rupee was in freefall, touching 68.8 on 28 August. It has recovered more than 10% with further recovery expected by many investors if Mr Rajan can balance growth without stoking inflation.

Next week in Asia, we can look forward to China’s flash HSBC manufacturing PMI (on 23 September). Given the recent expansionary data, the outlook for China’s growth has stabilised and there’s a prevailing sentiment that this will be maintained.

On the same day, Singapore’s August CPI is expected to have slightly increased to 2.1% from 1.9%. This will be followed by Japan’s CPI on 27 September.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.