The reopening of the US Federal government after a one month shutdown catalysed a rally in US markets on Friday, and set a positive tone for Asia’s opening.
This week is congested with big tech earnings as well as many political events: the FOMC meeting, Brexit vote, US-China trade talk, and Venezuela. With so many uncertainties down the road, gold registered its biggest intraday gain in nearly three months and attempted a psychological resistance level of US$1,300.
Four out of the five most valuable technology companies – Apple, Amazon, Facebook and Microsoft – are announcing their Q4 earnings this week. Many tech players are seeing growth slowdown in the holiday season and through into 2019, amid trade uncertainties and a cyclical downswing, and the drastic sell-off in tech shares at the end of last year seemed to have priced-in an overly pessimistic outlook. Nearly 80% of S&P 500 companies which have announced earnings so far have beaten market expectations.
The Federal Reserve’s dovish stance is likely to remain unchanged in this week’s FOMC meeting until trade and growth uncertainties are cleared. Lower energy prices and falling China factory prices (PPI) are inhibiting inflationary pressure to the global economy. A soft inflation outlook, alongside with a weaker growth prospect, suggests that global central banks are not in a rush to raise interest rates anytime soon. The implied probability forecast, according to FedWatch tool, suggests no rate hike until the second half of 2019.
Sterling is riding strong upward momentum as market has ruled out the likelihood of a ‘no-deal’ Brexit and moved forward to a debate and vote of Theresa May’s plan B this Tuesday. The parliament is working on an amendment in May’s Brexit deal and will probably seek an extension in article 50 if no deal is agreed by 25 February 2019. The British currency had a decent ‘relief rebound’ this year but will face major test around 1.327-resistance area. Momentum indicator RSI and DMI have shown signs of overbought for GBP/USD, and another defeat in this week’s debate will likely trigger profit-taking activities.
China Premier Liu He is flying to Washington for a second round of US-China trade talks later this week. Expectations are contained due to lack of progression in the key issues – intellectual property, forced technology transfer and ‘structural reform’ in China’s trade practices as demanded by the US. Still, some agreements on the physical trade level are likely to be achieved, and those will benefit US soybean, LNG, auto and other manufacturing goods in the mid to long term. Meanwhile, other satellite events including Huawei’s CFO Meng’s potential repatriation and Venezuela’s political chaos will further complicate the contest of this trade talk and make it more difficult to predict.
On the macro side, tonight’s US durable goods order, trade balance and new home sales will play a key role in setting the direction of the US dollar, which fell 0.8% last Friday.
In Singapore, the Straits Times Index ended a short-term correction and re-challenged the 3,200 resistance last Friday. Blue chips – ThaiBev, A-Reit and CapitaLand – are going to announce Q4 earnings this week.
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