Markets adrift ahead of Fed meeting

Asia markets are set for mild gains into the Tuesday open with Fed cut expectations still rife ahead of the midweek meeting.

Source: Bloomberg

Data support for Fed dovishness (again)

As told at the start of the week, every drib and drab of data was expected to feed into the expectations with regards to the Fed’s stance this week and sway markets. Monday’s releases had certainly joined the camp of supporters for dovishness. US June New York Fed manufacturing index and the NAHB housing market index had disappointed on both counts, emboldening the market’s conviction for greater Fed support in the upcoming meeting. US 10-year yields notably slipped after the releases, trading back below 2.1%. The Dow and the S&P 500 index meanwhile chalked up mild gains on Monday.

Downside protection

Examining the sectoral movements on the S&P 500 index, it would be apparent that despite the rather rangebound trade in the past week – whereby prices were locked in a narrow 16-point range of between 2874 and 2890 – there had been a clear theme of evasion to safety. Defensive sectors can be seen faring relatively better, owing to continued concerns over geopolitical concerns. More importantly, it could also be a mixture of fears that the Fed support may not be delivered as strong a dose as the market is hoping for in the upcoming meeting that is prompting the preference. The Fed meeting is clearly the key risk this week that could render the need for some downside protection. Financials, which had been the poorest performer in the past week, meanwhile may well retain its place in light of the expectations for the Fed to formally shift their stance towards a more dovish one.

SPX Sector Returns

Source: Refinitiv, IG

Asia open

Against the backdrop of continued hopes for greater Fed support to rise through, Asia markets look set to trail Wall Street with moderate gains at the start of the Tuesday session. Look to the slew of Australian updates, in particular the June Reserve Bank of Australia minutes for clues on further rate cuts from the central bank. China’s new home prices will also be seen ahead of key updates in the eurozone, but otherwise it does resemble a rather quiet day for Asia markets where the region may well meander along awaiting the Fed updates and other geopolitical news.

Yesterday: S&P 500 +0.09%; DJIA +0.09%; DAX -0.09%; FTSE +0.16%


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