Market summary
Fed Chairman Jerome Powell reiterated his hawkish tone in testimony to the Senate Banking Committee overnight, but Wall Street appears to be making a big move this time around (DOW Jones Industrial Average -0.01%; S&P 500 +0.37%; NASDAQ +0.95) %), with the S&P 500 and Nasdaq snapping their three-day losing streak.
Overnight economic data didn’t see much of a surprise in initial jobless claims in the US, but the Conference Board’s leading economic indicator could warrant some attention as it fell for the 14th straight month. The sharper pace of decline over the six-month period between November 2022 and May 2023 reflected that tougher policies were making their way through economic conditions, which kept interest rate expectations well anchored for an imminent end to the Fed’s hike cycle. Economic challenges coming from data put the value sectors in full swing overnight, while the more economically resilient tech giants shined.
More Fedspeak is lined up on the economic calendar ahead, but it could very much be an event as market participants get used to the Fed’s hawkish but data-driven tone. A string of PMI numbers will be on the radar as well, with any signs of a soft sell-off on the watch.
Treasury yields rose overnight, which helped hold the US dollar (+0.4%) but weighed on gold prices (-1.0%). The yellow metal rose to a new three-month low, and failed to hold above a major support confluence (uptrend line, Ichimoku cloud, 100-day moving average). The formation of lower highs and lower lows in the near term has put a downtrend in place for the time being, with any subsequent break of $1900 likely to pave the way towards $1868 next.
Source: IG Charts
Asian Open Championship
Asian stocks appear set for a mixed open, with Nikkei +0.29%, ASX -0.56% and KOSPI -0.38% at the time of writing. Hong Kong markets will be back online today, while mainland China’s stock market will remain closed due to the Dragon Boat Festival.
The economic docket this morning saw a big bearish surprise in headline inflation in Japan (3.2% vs. 4.1% expected), but the core side continues to head higher to 4.3% from 4.1% prior, with mixed data likely to put the Bank on edge. From Japan (BoJ) on more wait-and-see policy pivot plans. This is also supported by downside growth risks contained in the Bank au Jibun PMI readings, as the manufacturing sector was in contraction territory while the lower-than-expected services PMI put some dampers on reopening optimism.
The coming day will leave Singapore’s Consumer Price Index (CPI) in focus. With the Monetary Authority of Singapore (MAS) tending to pause in its hawkish stance since April this year, more evidence of moderate inflation will be needed to provide the conviction that there is no need to reinstate more hawkish policies. A downside surprise on that front could affect the Singapore dollar.
USD/SGD has been trading within an ascending triangle pattern over the past months, with near term higher lows revealing more control from the buyers. Flat upper trendline resistance could be in focus, with any subsequent move above 1.360 potentially paving the way to the next 1.375 level. A bullish bias may remain intact, with a bullish Moving Average Convergence/Divergence (MACD) cross, along with a flat sitting above the Ichimoku Cloud on the daily chart.
Source: IG Charts
On the watchlist: US dollar / Japanese yen It is heading above the ascending channel pattern
After trading within an ascending channel pattern since the beginning of the year, a firmer US dollar overnight allowed USD/JPY to overcome upper channel resistance, as it formed a bullish cross between the 100-day and 200-day moving average (MA). mobile)). The widening of the yield spread between US Treasuries and Japanese Government Bonds (JGBs) remains a major driving force, with recent central bank updates continuing to reinforce the Fed’s and BoJ’s policy divergence.
The next level in focus might be the 145.00-145.80 range, where one might recall how the Bank of Japan intervened in the currency market at this level in September 2022 by buying 2.8 trillion yen. Reaching this level could reignite some speculation that the central bank may intervene again, although previous intervention attempts have not always been successful in supporting the yen in the long term. On the downside, 142.00 would be an immediate support for consolidation, where the trend line of the upper channel stands.
Source: IG Charts
Thursday: DJIA -0.01%; S&P 500 +0.37%; Nasdaq +0.95%, DAX -0.22%, FTSE -0.76%