US stock indices increase, Asian markets brace for a negative open, and EUR/GBP form a double-bottom pattern.
US Stock Indices managed to eke out marginal gains in the opening of the trading week. However, analysts are cautious, viewing this uptick as an attempt to stabilize the markets following a recent sell-off. The absence of a fresh, bullish catalyst has left investors wary.
One notable development is the relentless rise in US 10-year yields, which reached a fresh 16-year high, surging above the 4.55% mark. Meanwhile, US 30-year yields advanced towards 4.67%. In contrast, US two-year yields experienced more subdued movements, increasing by two basis points. This shift in the yield curve indicates a market becoming accustomed to a “high-for-longer” stance.
US Stock Indices Make Modest Gains Amid Uncertain Market Conditions
Despite this seasonally weaker period of the year, concerns loom on the horizon. The US government shutdown may extend beyond its October 1st deadline while China’s housing market woes present immediate headwinds for investors. The US dollar rallied to a 10-month high overnight, targeting the 106.84 level next. The latest data from the Commodity Futures Trading Commission (CFTC) revealed that the aggregate positioning for the US dollar against other G10 currencies has reversed into net-long positioning for the first time since November 2022. We expect the upward trend since July to persist, with the 105.00 level providing immediate support.
In the upcoming economic calendar, the spotlight will be on US new home sales and consumer confidence data. Given recent concerns about the Federal Reserve’s commitment to maintaining higher interest rates, a lukewarm reading may be preferred by investors, offering the Fed more policy flexibility in deciding whether to proceed with its last rate hike.
Asian Markets Face Negative Open
As the trading day unfolds in Asia, stock markets are bracing for a negative opening. The Nikkei is down 0.89%, the ASX is down 0.44%, and the KOSPI is down 1.12%, tracking the weaker showing in US equity futures. Higher bond yields and a stronger US dollar do not inspire risk-taking confidence.
Adding to the downbeat mood are fresh liquidation orders for developer China Oceanwide and ongoing debt-restructuring woes at China Evergrande, indicating that the worst may not yet be over for China’s property sector.
Chinese Equities Struggle Amid Uncertainty
Chinese equities have retraced most of their gains from last Friday, with the Hang Seng Index down nearly 2% in the previous session. The index has been striving to defend the critical 61.8% Fibonacci retracement level from its previous reopening rally but lacks fresh catalysts. While investors engaged in dip-buying last week, a failure to support last week’s lows may trigger a retest of the 16,524 level, where the next Fibonacci level stands.
A more confident buying sentiment may require a move back above its Ichimoku cloud, which it has struggled to achieve since July 2021.
Singapore’s Industrial Production Data in Focus
Shifting our focus to Singapore, authorities will release industrial production data today. Following a 20.1% contraction in Singapore’s non-oil domestic exports (NODX) in August, we expect this data to show a 3.1% contraction, indicating weaker global demand. Such figures are likely to reinforce the downbeat growth outlook for Singapore, with sentiments closely aligned with the broader global risk environment.
EUR/GBP Forms Double-Bottom Formation
Lastly, on the trading front, the EUR/GBP currency pair has been trading within a double-bottom formation since May of this year—an attempt to break above the neckline at the 0.870 level encountered resistance. A bullish crossover has emerged on its Moving Average Convergence/Divergence (MACD), and the weekly Relative Strength Index (RSI) has crossed above the key 50 levels for the first time since April 2023, signaling an attempt by buyers to regain control.
Recent developments include the pair’s recapture of its 100-day moving average (MA) last week, following three unsuccessful attempts since May. A stronger bullish sentiment awaits a breakout above the 0.870 level, where the 200-day MA also resides. Success on this front may open the door to a retest of the 0.882 level.