Thursday, January 20

US congress prepares to debate debt ceiling

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Fundamental outlook

 

THE US Congress faces two massive tasks over the next month: funding the US government and increasing the debt ceiling. Failure to fund the US government could result in a shutdown, but failure to increase the debt ceiling could lead to an economic catastrophe.

US consumer prices gained 0.3 per cent on in August. Excluding fresh food and energies, core prices grew 0.1 per cent. Both data were below consensus’ expectations.

US core retail sale, excluding automobiles, grew 1.8 per cent in August, highest in five months. Traders are expecting an impending tapering and have sold down precious metals.

On Friday closing, both S&P Index and Nasdaq Composite Index fell for the second consecutive week, ahead of the FOMC meeting.

China retail sales grew 2.5 per cent in August on a yearly basis, far below the forecast at 6.9 per cent. Many Chinese stocks in education, gaming and fintech sectors have been rattled by the government’s revision of regulations.

Evergrande, a mega giant Chinese property company, is currently undergoing a possible default of US$300 billion in debt repayment. Investors are worried this will affect the Chinese capital market.

 

Technical forecast

 

US dollar/Japanese yen stood firm on 109. The FOMC meeting will be a catalyst for the dollar’s trend. We prefer to observe the range from 109 to 110.50 until it breaks in either direction.

Euro/US dollar fell below 1.18 as the dollar recovered. We expect the support at 1.165. Observe the dollar’s trend which could affect the euro.

British pound/US dollar topped 1.39 before declining. We foresee the trend to be supported at 1.365. Sideways movement is expected. The market will eventually follow the dollar’s trend post-FOMC meeting.

WTI Crude prices reached US$73 per barrel after the dollar rose. We predict the trend could trade sideways from US$70 to US$74 per barrel in mixed trading. Trading activities are expected to be narrow with more interest skewed towards metal commodities.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives topped RM4,450 per metric tonne after the rollover and fell on Friday. December Futures contract settled at RM4,261 per metric tonne on Friday. We expect the trend to make a correction and drive down to test RM4,100 per metric tonne level. Resistance could emerge at RM4,300 per metric tonne.

Gold prices dropped to US$1,750 per ounce after the dollar rose, with signs of an inflation in core retail sale. We expect the trend to be from US$1,740 to US$1,780 per ounce until it emerges from the consolidation. Pay attention to the dollar and possible new US stimulus before end-September.

Silver prices fell off US$24 per ounce and closed at US$22.40 per ounce on Friday. We expect support to emerge at US$22 per ounce and possibly fuel a rebound. However, the range may be tight from US$22 to US$23 per ounce for the time being.

 

Dar Wong has more than 30 years of trading and hedging experiences in global financial markets. The opinion is solely his own. He can be reached at dar@alaa.sg.