Better-than-expected US retail sales figures strengthened the outlook for US economic growth, sending the US dollar index to its highest level in three weeks.

The likelihood of a December rate hike, according to the CME’s FedWatch Tool, has surged from 37.4% a day ago to 54.7%. The strong dollar further suppressed the performances of precious metals and commodities. 

The impact of geopolitical tensions on the stock markets has proven once again to be impulsive and short lived. Global equities switched back to ‘risk-on’ mode, with investors taking their cues from Washington claiming to pursue a political resolution of the North Korea threat. Meanwhile, China has imposed import bans on some North Korean goods as part of the United Nation’s sanctions yesterday.

Investors are taking advantage of the technical pullback as re-entry opportunities are resulting in a relief rebound in risky assets, and a retracing in safe-haven assets. The volatility index August forward contract has fallen sharply to the low-teens, suggesting that market sentiment is improving. Precious metals and the Japanese yen fell from recent highs due to falling demand for safety. Technically, USD/JPY has formed a ‘double bottom’ pattern, which is usually viewed as a bullish signal. 

Singapore earnings season ends

Singapore’s second quarter earnings season has ended, with mixed results. According to Bloomberg, 11 out of the STI’s 30 component companies have beaten market expectations, 14 companies have missed expectations and the remaining five have no consensus forecast.

Sector wise, banks (OCBC, UOB), property developers (Hongkong Land, UOL), shipbuilders (Yangzijiang), casino and gaming (Genting Singapore) were among the outperformers, while offshore and marine (Keppel Corp, Sembcorp Industries) and commodity trading (Wilmar) remained weak, against the backdrop of muted crude oil prices and challenging operating conditions.

Despite weakness in the oil-and-gas-related industries, overall earnings have been improving across a broader range of industries over the past few quarters, alongside improving economic conditions. Many companies are riding the cyclical tailwind brought about by revived global trades and rising demand from the US, China and the EU. 

The trailing 12-month earnings per share (EPS) of STI index is now at the highest level since mid-2015, according to Bloomberg data. Due to mixed earnings results, the STI index has been consolidating at around 3,200 points. Fresh catalysts are needed to give the market another boost over the remainder of the year.  

Technical analysis: US Dollar Index Sep 2017

  • 10-Day Simple Moving Average has flipped upward (bullish signal)
  • SuperTrend (10,2) remains in a bearish set-up (red colour), but will turn bullish if price goes above the 93.87 level
  • 100% Fibonacci extension level (94.00) remains the key resistance level in the days to come

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