Asia morning update - cautious start to a busy week

QT tapering hopes

While earnings played a key role, fresh headlines highlighting that the Federal Reserve had been weighing a potential earlier end to the balance sheet shrinking program provided Wall Street with a boost. As it is, the purchase of treasury securities in itself had no doubt been a monetary policy tool. The halting of which, seemingly suggested for a duration earlier than the market’s expectations, therefore performs the function of easing and had been music to the ears for the markets. All but the defensive consumer staples and utilities sectors contributed to Friday’s 0.85% gain for the comprehensive S&P 500 index. How the abovementioned intention could be telegraphed will be the question for this week’s Federal Open Market Committee (FOMC) meeting as the WSJ piece illustrated the contemplation that Fed members had been in on resolving the details and communicating them.

With the above said, the FOMC meeting had perhaps just risen in importance within the long list of items to watch as outlined in our week ahead piece. A confirmation of any earlier-than-expected tapering, by means of this year-end to 2020, could further enliven markets across US to Asia, one to watch.

Asia open

Monday morning news of Apple’s supplier Foxconn significantly cutting jobs have dampened the positive mood off the gains from US markets, thus leading to the mixed start for the region. More importantly, however, the assortment of high impact events lined up this week seem to be inviting markets to approach with caution. While the Australia market remain closed on Monday for a market holiday, the Nikkei 225 and KOSPI had moved in opposing directions. Meanwhile the HSI and STI are due to see mild gains. A slew of central bank releases is expected this week, but it will be the likes of Caterpillar Inc.’s earnings release in the US session taking the limelight, serving as a bellwether for global industrials and a leading indicator for growth alike.

Market levels

In light of the sting of events this week, it would perhaps be timely to assess the prices on some of the items we follow.

For the comprehensive S&P 500 index, the flatlining of prices in the past week had been apparent after the roller coaster ride through December and most of January thus far. Watch for the US-China trade talks, US GDP readings, FANGs earnings and the Fed meeting on where it would lead markets this week. Any significant disappointment that pushes prices past the 50% Fibonacci retracement level again could see the index susceptible to further downside risks.

Likewise across the pacific to most of Asia bourses such as the Singapore Straits Times Index, where trade had been hanging in the upper end of the consolidation zone. Prices sit awaiting a breakout from above, though over and above the abovementioned items, Chinese PMIs could pose headwinds to gains this week that may lock prices back within the consolidation zone.

Consequently for spot gold, look to how it moves as a function of the US dollar. The $1300 resistance holding strong, but a break above may well happen with any lift in risk sentiment this week.

Brent crude prices appear to hold this inverse head-and-shoulder pattern, waiting for further upsides but the true driver for prices remain with demand issue. Should China’s PMI disappoint, and US-China talks conclude without a positive rhetoric, prices may be susceptible to further downsides once again.

Friday: S&P 500 +0.85%; DJIA +0.75%; DAX +1.36%; FTSE -0.14%