Sentiments on hold as Fed meeting looms this week: US SPDR Regional Banking ETF, USD/SGD, Gold

Market Recap

Wall Street were little changed last Friday amid subdued moves in the Treasury yields, while the US dollar saw further firming (+0.3%) following recent sell-off. Some reservations continue to linger around mega-cap tech stocks ahead of several key earnings this week in the likes of Alphabet, Microsoft and Meta Platforms, as recent releases from Netflix and Tesla suggest that earnings expectations may be priced close to perfection. Overbought technical conditions and ‘extreme greed’ sentiments as shown from the CNN Fear & Greed Index may call for some cooling in the recent equities rally, although the broader trend still leans towards an upward bias.

The start of the new trading week could potentially bring about some indecision, before volatility picked up on the onslaught of big tech earnings and the FOMC meeting towards the latter half, alongside meetings from the European Central Bank (ECB) and the Bank of Japan (BoJ). Up today, a series of global flash purchasing managers index (PMI) data will be on watch, with consensus largely for global economic conditions to stay soft.

With the pick-up in the US financial sector lately on earnings releases (XLF +3.1% over past week), perhaps one to watch may be the SPDR S&P Regional Banking ETF, which has recently broken above the neckline of an inverse head-and-shoulder formation. The neckline projection suggests an eventual target of the 56.10 level, with immediate resistance to overcome at the 46.94 level for now. Increasing moving average convergence/divergence (MACD) and a move above its 100-day moving average (MA) seem to support some upward momentum in place.

Asia Open

Asian stocks look set for a positive open, with Nikkei +1.32%, ASX+0.04% and KOSPI +0.27% at the time of writing. Chinese equities were attempting to find their footing last Friday, with the Nasdaq Golden Dragon China Index eking out a 0.4% gain, following a 0.8% up-move in the Hang Seng Index in the earlier session. Recent stimulus measures to boost consumption of automobile and electronics items failed to provide much conviction that they will be sufficient to uplift the downbeat growth conditions, with mounting hopes on the China Politburo meeting this week for more follow-through.

Closer to home, Singapore’s consumer price index (CPI) will be on the radar today, with further moderation in pricing pressures likely to be the story. Headline inflation is expected to ease to 4.6% from previous 5.1%, while the core aspect is expected to head to 4.2% from the previous 4.7%, overall reflecting some progress in inflation and provide room for an extended pause in tightening from the Monetary Authority of Singapore (MAS).

The USD/SGD has been largely trading within a rectangle pattern since the start of the year, recently attempting to find support off the lower base at the 1.320 level. A bullish crossover on MACD and increasing RSI may point to near-term upward momentum as a reversion from oversold technical conditions plays out, but the broader consolidation pattern could still point towards wider indecision. Near-term, any softer-than-expected read in inflation figure could potentially leave the 1.338 level on watch as immediate resistance to overcome.

On the watchlist: Gold prices on watch in lead-up to FOMC meeting this week

Into the FOMC meeting this week, expectations were priced for the Fed to deliver its last 25 basis point (bp) rate hike before a prolonged pause in its hiking cycle through the rest of the year. Any emphasis on a more data-dependent stance from the Fed at the upcoming meeting could be viewed as less hawkish, which may aid to limit the downside for gold prices. Thus far, gold prices have recovered as much as 4.5% in July on a softer US dollar and lower Treasury yields, but are facing some resistance at the US$1,980 level.

The recent CFTC data has revealed a sharp build-up in net-long positions among money managers to its two-month high last week (135,907 contracts, up from 100,619 contracts the week before). For now, its weekly Relative Strength Index (RSI) has also managed to defend its key 50 level. Greater conviction for buyers may have to come from a reclaim of its key psychological US$2,000 level, with any successful attempt potentially placing its 2023 high back on the radar for a retest.

Friday: DJIA +0.01%; S&P 500 +0.03%; Nasdaq -0.22%, DAX -0.17%, FTSE +0.23%