Market Recap

The attempt for the S&P 500 to hold above an upward trendline proved to be short-lived, with the downward break of trendline support yesterday suggesting no sign of relief for risk sentiments and reinforces its ongoing downward bias. US Treasury yields continue to tick higher overnight in the lead-up to next week’s Federal Open Market Committee (FOMC) meeting, translating to greater bearish pressure on the rate-sensitive Nasdaq (-1.43%). The 17% plunge in Adobe’s share price added to the tech sell-off as well, after it released a mixed outlook for the fourth quarter while announcing its acquisition of Figma, which was deemed a too-high price tag by the markets.

Economic data yesterday revealed a surprise rise in US retail sales (+0.3%) from a month ago and excluding gasoline, retail sales were up 0.8%. Along with the lower-than-expected readings for jobless claims, the resilience in US consumer demand and labour market provided the go-ahead for further tightening to take place. This comes despite some moderation for a 100 basis-point (bp) rate hike expectations in next week’s FOMC meeting (20% currently versus 25% a day ago), brought on by weaker manufacturing activity data and some hints of moderating inflation in prices paid by manufacturers. All eyes will be on the US consumer sentiment reading later today, where an outperformance may continue to support the overall Federal Reserve (Fed)’s tightening landscape. Current expectations are for a slight uptick to 60, from the previous 58.2.

Asia Open

Asian stocks look set for a negative open, with Nikkei -1.03%, ASX -0.68% and KOSPI -0.40% at the time of writing. Chinese equities remained under pressure yesterday, reacting negatively to the partial rollover of maturing medium-term policy loans which suggests that its growth problem is more than just an issue of liquidity. The Nasdaq Golden Dragon China Index remains down by 0.8% overnight, with the negative lead in Wall Street providing a downbeat environment for risk sentiments in the region today as well.

Singapore’s August non-oil exports figure came in stronger-than-expected at 11.4% year-on-year (YoY) versus the 8.3% consensus. A 4.5% drop in electronics exports from a year ago was mitigated by a 16.9% rise in non-electronics exports, with the heavy-lifting done by pharmaceuticals, food preparations and structures of ships and boats. While this may point to some resilience, the cloudy outlook on global trade with further tightening of central banks’ policies, such as in US and EU, along with virus restrictions in China, could still put a cap on sentiments.

A series of economic data out of China will also be in focus today. Though it may not be reflective of the impact from recent virus restrictions, it could still provide some clarity on underlying economic conditions. Overall data are likely to reinforce the lower-for-longer growth picture, with YoY industrial production’s growth unchanged from July, while fixed asset investment to see some moderation from ongoing property risks. The bright spot may be in retail sales with a 3.5% recovery from previous 2.7% as China eased inbound travelling rules, but that is unlikely to drive bullish sentiments with market focus on further moderation in September from renewed restrictions.

The Hang Seng Index (HSI) is edging closer towards its March 2022 bottom, where talks of policy support have previously driven a 20% relief rally. The index continues to trade with an overall downward bias, with the series of lower highs and lower lows while multiple attempts to rebound are eventually proved short-lived. Any downward break of this level over the coming days may leave the 17,000 level on watch over the longer term.

On the watchlist: USD/CAD at its highest level since November 2020, Brent crude below support

The USD/CAD has tapped on a 3.6% plunge in oil prices overnight to push to its highest level since November 2020, with the trigger being headlines that the US Administration will not rush into buying crude to refill its Strategic Petroleum Reserve (SPR). The confluence of headwinds surrounding oil prices also include concerns of further moderation in demand outlook and an aversion of US rail workers strike in a tentative deal. After hovering at a key support-turned-resistance at the US$92.87 level, Brent crude prices failed to hold, with the lower highs in prices continuing to present an overall downward bias. That seemingly leaves the US$82.50 level on watch next.

Thursday: DJIA -0.56%; S&P 500 -1.13%; Nasdaq -1.43%, DAX -0.55%, FTSE +0.07%