Laying out the red carpet for central banks

Cyclicals in favour again

Wall Street concluded Monday little changed awaiting fresh leads to take its hike further. As far as the comprehensive S&P 500 index is concerned, prices had shot past the short-term 50-day moving average to consolidate higher between that and the 3000 level. A look at the sectoral breakdown of the S&P 500 index in the past 5-session period and it would perhaps be of no surprise seeing the cyclicals and defensives divide showing rather apparently. And unlike the trend a couple of weeks ago, the cyclical sectors evidently appeared to have the wind beneath their wings.

While we will not go into details as to why the rally alongside the latest turns in geopolitical events may be founded on unsteady foundation, anticipation for the slew of central bank support may nevertheless help to support prices. As told in our Asia week ahead, the European Central Bank meeting is lined up this week, packing the hopes of a deposit rate cut in addition to the restarting of quantitative easing (QE). Following suit in the coming week will be the likes of the Federal Reserve and the Bank of Japan. One would also recall that the People’s Bank of China (PBoC) had only recently announced the RRR booster and has fuelled anticipation for further stimulus. Thus, while the market muddles along in geopolitics uncertainties that retain, the short-term outlook for the market looks to be positive with one dose of monetary policy support after another.

Source: Reuters, IG

Asia open

Optimism from the September Fed cut and Chinese stimulus had helped to carry Asia markets against the disappointing August trade figures at the start of the week. Amid the lack of fresh leads, regional indices may ensue in the lacklustre fashion, tracking that as seen from Wall Street.

Of attention in the Asia session would be the slew of Chinese releases, including August’s producer and consumer price inflation readings. The current consensus is pointing towards a steeper decline for August’s producer inflation reading to -0.9% year-on-year to reflect a poorer demand picture. This will mark the lowest seen since July 2016, one to watch after the disappointing exports performance, although the recent spate of policy support announcement may help to dull the impact on markets.

Yesterday: S&P 500 -0.01%; DJIA +0.14%; DAX +0.28%; FTSE -0.64%