Asian stock markets sets for a higher opening today following Wall Street rallies last evening. The Federal Reserve chairperson Janet Yellen sent dovish signals to the markets during the congressional testimony, as subdued inflation remains a key concern despite of robust jobs market growth.

The Feds “continue to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time”, she said, but the rates “would not have to rise all that much further”. It would seem that the Feds still feel that the economy needs a loose, or at least accommodative, monetary policy, so a lower neutral rate means the Feds may be compelled to slow the pace of rate hikes down the road.

After Yellen’s testimony, the likelihood of one more rate hike in December - according to Bloomberg’s interest rate probability forecast- dropped to 43% from 47%, just a day ago. The US dollar index retraced further to 95.4 area – close to its nine-month low – as an immediate result from this announcement.
 
US equities also rallied in response to a weaker dollar, due to expectations of a neutral-biased monetary policy outlook. The S&P 500 index climbed 0.73% and closed at 2,443 point, moving closer to key resistance levels of 2,450 points.

The sustainability of this rally will depend on the upcoming earnings season as the market shifts its focus to the companies’ mid-year reports. Big banks including JP Morgan, Citigroup and Wells Fargo are among the first batch to announce earnings at end of this week. In Singapore, SPH and Keppel Corp will kick off the start of the earning season on this Friday, followed by CapitaLand Commercial Trust, Hutchinson Port, CapitaLand Mall Trust and SATS next week.

Technical analysis

Hong Kong 50- Cash:

  • Breakout above key resistance level 26,170 area (100% Fibonacci level)
  • SuperTrend (10, 3) has flipped upwards, indicating that the long side is taking control again.
  • 10-Day Simple Moving Average is sloped upwards
  • Momentum indicator MACD has formed a bullish crossover

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