Equity Returns Mixed As Market Awaits Yellen
Swissquote Bank Ltd | Aug 24, 2016 03:34AM ET
Market Brief
In Asia, equity returns were mixed in spite of solid session in Wall Street on Tuesday. Japanese stocks ended however in positive territory, boosted by a slighty weaker yen. The Nikkei 225 rose 0.56% and the broader Topix index was up 0.73% as USD/JPY tested the 100.52 level in Tokyo. In mainland China, stocks have been moving back and forth around the zero line. In Europe, equity futures are trading in negative, pointing to a lower open.
Overnight, the US dollar was trading higher against most currencies as traders boosted bets the Fed will modestly hike interest rate before the end of the year. The probability of a move in September extracted from the fed funds futures market increased to 28% overnight amid better-than-expected new homes sales. US new home sales rose to a 9-year in July, up 12.4%m/m to a 654k annualised figure, beating widely market expectations of a 2% contraction. The very low interest rate environment together with a relatively strong job market create perfect conditions for a real estate bubble and the Fed will definitely not turn a death ear to the issue. However, as in other countries like New Zealand and Australia, there are various ways to address this issue; interest rate tightening is the not the only one.
The market is getting nervous about Yellen’s upcoming speech on Friday at Jackson Hole after several Fed members, including Vice Chairman Stanley Fischer, released some hawkish comments, suggesting the Fed was on its way to finally push the button. The greenback has been on a rollercoaster for the last week as investors still doubt there is a strong consensus amongst Fed members. This morning, the dollar index edged up 0.15% to 94.66 after hitting 94.21 yesterday. The market will therefore be sensitive to the key US data that are due to release before Friday.
In South Africa, the rand took a massive hit yesterday against the greenback after speculations that Finance Minister Pravin Gordhan may be relieved from office after rumours he had been summoned by police. USD/ZAR surged more than 5% for the last 24 hours to 14.1379, the highest level since July 29th, as South African 10-Year treasury yields surged more than 50bps at 9% amid a wide sell-off in sovereign bonds. With increasing speculation the Fed will start tightening, the currency pair is definitely subjected to upside risk. On the upside, a resistance can be found at 14.23 (50dma), while on the downside a support area lies at around 13.00 (previous low and psychological level).
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Currency Tech
EUR/USD
R 2: 1.1616
R 1: 1.1428
CURRENT: 1.1340
S 1: 1.1046
S 2: 1.0913
GBP/USD
R 2: 1.3534
R 1: 1.3372
CURRENT: 1.3176
S 1: 1.2851
S 2: 1.2798
USD/JPY
R 2: 107.90
R 1: 102.83
CURRENT: 100.07
S 1: 99.02
S 2: 96.57
USD/CHF
R 2: 0.9956
R 1: 0.9775
CURRENT: 0.9604
S 1: 0.9522
S 2: 0.9444
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