Global stock indexes trade in volatile market

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Fundamental outlook  

THE US economy showed recovery in housing market while consumer confidence surged in optimism. Orders for core durable goods improved on a monthly basis and jobless claims saw a decline. Japan recovery stagnated but unemployment rate has declined. UK’s mortgage approvals for housing loans had increased along with business investments.

US new home sales performed better in July at 507,000 compared to 481,000 revised in June. The Conference Board’s consumer confidence surprised the market by jumping to 101.5, the best recorded since August 2007, after it showed 91 in July.

US orders for durable goods, made to last for more than three years, rose two per cent in July after it gained a revised 4.1 per cent in the previous month. Orders for core durable goods, excluding transport equipment, climbed 0.6 per cent, twice more than expected.

Weekly jobless claims in US job markets steadied at 271,000 in the week ended August 22, better than previous week’s 277,000 cases. In another report, prelim GDP for the second quarter (2Q) grew 3.7 per cent, higher than median forecast. Pending home sales rose 0.5 per cent after it slumped 1.7 per cent in June.

US trade balance for general goods saw US$59.1 billion deficits in July. University of Michigan reported that the monthly consumer sentiment at 91.9 in August which was lesser than expectations.

Dow Jones benchmarks slid more than 1000 points last Monday which triggered global fall-off in stock indexes. All markets recovered after mid-week and closed around open prices with whipsaw technical patterns.

Japan’s household spending dropped 0.2 per cent in July from a year ago against an expected rise. Core prices in consumer inflation stagnated in August on a yearly basis while core inflation in Tokyo declined 0.1 per cent on year.

Unemployment rate in July went down to 3.3 per cent, which was better than the previous month’s 3.4 per cent.

German Ifo Business climate index that measures investors’ confidence reveals gains at 108.3 in August while previous month grew at 108 reading. The finalised report for growth in 2Q for Germany was 0.4 per cent, in line with median forecast.

UK mortgage approvals saw steady growth in July at 46,000 after a revised at 44,800 cases in July. The prelim estimate for business investment grew 2.9 per cent in 2Q, higher than the previous quarter’s two per cent gains. The second estimate for 2Q GDP stayed at 0.7 per cent growth.

 

Technical forecast  

US dollar/Japanese yen dipped to 116.26 last week but quickly recovered to above 121 levels before the weekend. The unexpected decline came from the sudden meltdown of Dow Jones markets with regional indexes.

This week, we reckoned that the market will trade sideways in uncertainty from 118.5 to 122.5 regions subject to the strength of the dollar. Risk control should be reinforced to safeguard profits.

Euro/US dollar reached 1.1712 highs and receded rapidly to 1.12 regions before the weekend. Buying interest is expected to be supported at 1.115 regions for the coming week while market might hover in the range below 1.132 resistances.

Sideway trend will be expected in this range until it breaks out of either direction.

British pound/US dollar weakened last week but was still supported at 1.53 areas. This week, we predict that the range will trade from 1.53 to 1.55 ranges in tight band. There are no indications for the eventual direction but we suggest following fundamental news of UK’s economic data.

Disclaimer: This article was written for general information only. No liability by the writer or newspapers. Dar Wong is a registered fund manager in Singapore with 26 years of trading experience in global Derivatives & FX markets. He can be reached at [email protected].