Wall Street added to last week’s gains to start the new trading week: S&P 500, Singapore Index, Brent crude

Market Recap

Downbeat economic data failed to put a dent on risk sentiments overnight, as equity bulls remain firmly in control and shrugged off further indications of growth risks. This came despite a surprise contraction for manufacturing activities in the New York state, with the Empire State survey cratering to -31.3 from previous 11.1. The general business conditions index marks its largest monthly decline in the index on record, with the sharp contraction presented in both new orders (-29.6 versus 6.2 in July) and shipments (-24.1 versus 25.3 in July) as well. On the other side of the globe, China’s economic data also underperformed expectations in what should have been a stronger expansion from intermittent easing virus restrictions, suggesting that its economic recovery will likely be lower-for-longer ahead and pointed to a more muted global demand outlook.

While the downside surprises across the economic calendar suggested that growth conditions have clearly worsened, market participants seem willing to ride on optimism that the Fed has room to cut rates sooner than later with easing inflation. Overnight, major US indices managed to reverse earlier losses and further add to last week’s gains (DJIA +0.45%; S&P 500 +0.40%; Nasdaq +0.62%). Outperformance in defensives and mega-cap growth stocks have done the heavy-lifting, as Treasury yields retreated. The energy sector was the only sector in the red, dragged lower by falling oil prices.

The day ahead will bring industrial production data out of the US, but further weakness seems unlikely to cause a major negative reaction. The focus will be on US retail sales, along with the Federal Open Market Committee (FOMC) minutes later in the week. For the S&P 500, volume for recent up-move seems lighter compared to previous weeks, along with an in-tandem increase in the VIX. After the 16% surge since mid-July while pricing for an easing inflation outlook, technical conditions seem overbought. In the event of a retracement, near-term support may be at the 4,200-4,225 level, which marks a confluence of key Fibonacci retracement support.

Asia Open

Asian stocks look set for a mixed open, with Nikkei -0.10%, ASX +0.90% and KOSPI +0.62% at the time of writing. Sentiments may continue to revolve around the disappointing economic data from China yesterday, with fixed asset investment, industrial production and retail sales all underperforming market expectations in what should have been a stronger expansion from intermittent easing virus restrictions. This paints a more muted growth picture, which explains the 10 basis-point (bp) cut to its one-year medium-term lending facility (MLF) cut and seven-day reverse repo cut. Similar rate cuts were done back in January, with further cuts suggesting that its economic outlook remains fragile to require more policy support despite the absence of hard lockdowns. Global trade activities are set to moderate further towards the rest of the year, which comes as another headwind ahead.

This may not bode well for Singapore’s economy, considering that we are dependent on economic activities from China as one of our major trading partners. On the technical front, the STRAITS is breaking below a confluence of support at the 3,250 level. Despite recent Wall Street momentum, upside in the STI seems to be stalling lately. If the 3,250 level gives way, it could suggest further reversion to the 3,186 level next.

The day ahead will bring the Reserve Bank of Australia (RBA) meeting minutes in focus, with the central bank raising interest rate by 50 bp as expected to 1.85% in its previous meeting. A tough stance towards tackling inflation by the central bank could be reiterated in the upcoming minutes but with the official cash rate heading close to the neutral rate of 2-3%, any signs of a potential moderation in rate hike path will be scrutinised, although it could still be the least likely scenario for now. The AUD/USD will be on watch, with the pair retesting a key support at the 0.700 level. The level may have to hold to drive a formation of a new higher low for the resumption of its near-term upward trend.

On the watchlist: Rebound for Brent crude short-lived as upper channel trendline resistance weighs

Commodities prices across the board were under pressure as China’s July economic data painted a more downbeat growth picture than previously expected, which prompted renewed concerns on demand outlook. Talks to revive the Iran nuclear deal also remain in focus, with any deal revival likely to bring back Iran oil supplies. Guidance thus far has signalled willingness to corporate and carries some optimism. These factors translate to losses in oil prices, which have effectively wiped out its recent gains over the past two trading days and proving the recent rebound to be short-lived. With that, Brent crude prices continue to trade within a descending channel pattern, with its upper channel trendline serving as a key resistance once more. A break below the US$92.87 level may unlock further downside to the US$82.50 level next, where the bottom channel support will be tested.

Monday: DJIA +0.45%; S&P 500 +0.40%; Nasdaq +0.62%, DAX +0.15%, FTSE +0.11%