Major US Indices Struggle as Hawkish Fed Stance Persists

Major US indices struggle amid hawkish Fed, Asian markets cautious, USD/SGD at nine-month high, BoJ’s dovish stance.

Major US indices struggle: In a turbulent trading session last Friday, they attempted to rebound from their recent near-term support levels. However, gains faded in the latter half of the day as selling pressures dominated. The Federal Reserve’s current hawkish stance primarily caused this ongoing struggle, casting a shadow over the risk environment. Furthermore, hawkish comments from Fed officials towards the end of the week, particularly those of Governor Michelle Bowman, a voting member of the Fed, added to the prevailing concerns by downplaying recent progress on inflation and advocating for additional interest rate hikes.

Major US Indices Struggle as Hawkish Fed Stance Persists

Despite slight cooling on Friday, US Treasury yields remained elevated, hovering near their 16-year high. This high-yield environment kept a cap on gold prices, facing significant resistance around the crucial US$1,945 level. This level is essential as it corresponds to the 100-day moving average (MA) and the Ichimoku cloud. While signs of a near-term ascending triangle formation suggest buyers’ attempts to regain control, the US$1,900 level is expected to serve as a critical battleground. Failure to defend this level may open the door to a retest of the US$1,850 mark.

Asian Markets Brace for Subdued Opening

As the new trading week kicks off, Asian markets are bracing for a potentially subdued opening. When writing, Japan’s Nikkei was up by 0.13%, Australia’s ASX was down by 0.54%, and South Korea’s KOSPI showed marginal gains of 0.02%. Despite the lackluster performance on Wall Street, Chinese equities have shown resilience, with some investors scooping up shares near critical technical support levels. The Hang Seng Index, in particular, posted a 2.6% gain last Friday after testing its low from August 2023. Similarly, the Nasdaq Golden Dragon China Index rose 2.9%, showcasing a performance divergence from the US session. This divergence suggests that profit-taking in US equities may lead to a rotation of capital into the relatively undervalued Chinese equities, especially as positive economic surprises spark hopes of successful policy measures.

Singapore’s Inflation Data in Focus

Investors are closely watching Singapore’s August inflation data today. Expectations indicate that core pricing pressures will ease for the fourth consecutive month, dropping from 3.8% to 3.5%, while projections suggest that headline inflation will soften from 4.1% to 4%. Coupled with the recent decision by the Federal Reserve to maintain interest rates, these factors provide room for the Monetary Authority of Singapore (MAS) to extend its pause on monetary policy tightening during its October meeting. The central bank will closely monitor ongoing economic risks, particularly given that Singapore’s non-oil exports have declined for an 11th consecutive month in August, reflecting soft global demand.

USD/SGD Hits Nine-Month High Amid US Dollar Strength

The USD/SGD currency pair has recently reached a nine-month high due to the strength of the US dollar. It successfully breached a fundamental resistance level at 1.360, which had marked the upper boundary of a long-ranging pattern since the beginning of the year. Although lower highs on the daily Relative Strength Index (RSI) characterize signs of near-term exhaustion, we anticipate that the broader upward trend will remain intact as long as the 1.360 level is maintained. Potential success surpassing recent peaks at 1.367 may open the door for further upside, with a retest of the 1.380 level on the horizon.

Bank of Japan’s Dovish Stance Keeps USD/JPY at 10-Month High.

On Friday, comments from the Bank of Japan (BoJ) Governor counterbalanced recent hawkish expectations. The BoJ expressed patience in normalizing policy, emphasizing the need to see more evidence of “sustainable 2% inflation” before considering a policy pivot. Despite rate expectations pointing towards the end of negative interest rates in 1Q 2024, the USD/JPY currency pair has remained resilient at its 10-month high. While lower highs on the daily Relative Strength Index (RSI) suggest some near-term exhaustion, the overall trend for USD/JPY remains upward-biased, with an ascending channel pattern in place since the start of the year. Further upside may challenge the critical resistance at the 150.00 level, while immediate support lies at 145.80 for bullish investors to defend.

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