Wall Street led the global markets to close in a sea of red last week as the Fed’s stubborn hawkish stance rattled the markets and sent the US government bond yields soaring to a fresh 16-year high. US stocks extended a three-week losing streak amid re-elevated inflation and the projection for higher terminal rates, which required a re-valuation of the equity markets. The selloff was particularly seen in some big tech stocks, such as Amazon and Tesla, down 8% and 11% for the week, respectively. Risk-off prevailed, and the downward momentum could send markets lower as three indices have broken out their 100-day moving averages, which are all pointing to a negative close in September. This week, the final read of the US Q2 GDP data will provide further clues if the country is in a “soft-landing” trajectory, along with the August PCE, which is the Fed’s favourite gauge for inflation.
China’s property rout somewhat eased amid the government’s rescue policies. However, the sector was still the biggest laggard that dragged on the Hong Kong market performance, with the Hang Seng Index down 0.54% last week. Resilient moves were seen in the Chinese tech and EV stocks, with Alibaba, BYD, experiencing a decent bounce on Friday. The Chinese Yuan eased falling against the US dollar due to the PBOC’s intervention, which also provided support to its stock markets. Asian central banks, such as the BOJ and the PBOC’s policies, are more supportive to economic growth. The divergence stance may attract foreign investors, which also provides strength to the Yen and Yuan. This week, China’s manufacturing and services PMIs for September will have a major impact on commodity prices, such as copper and crude oil.
The ASX 200 shed nearly 3% for the week on the bond jitters as the local government bond yields spiked to their 2-month highs, pressing on the local stock market, with all 11 sectors finishing in the red, and the technology, energy, and healthcare sectors led to the loss. Big caps, such as BHP, CSL, and Commonwealth Bank, were all sharply down on the risk-off sentiment. However, the AUD/USD pulled back from the near-term resistance of 0.65 and finished flat after swinging in directions. The upcoming CPI and retail sales for August can be the price movers for the local markets and the currencies.
What are we watching?
- Bond yields soar: The US 10-year bond yield spiked to its highest level since 2007, and the yields on the 2-year bond hit a 17-year high. Soaring bond yields may continue to restrain market liquidities, pressing on risk assets.
- Defensive sectors outperform: The defensive sectors, such as Consumer Staples, Utilities, and Healthcare, in the S&P 500 outperformed broad markets as investors sought safety amid the broad selloffs.
- The US dollar’s strength shows exhaustion: The dollar index rose for eight straight weeks, but the upside momentum may be fading as it faces key resistance of about 106. This could cause a technical correction in the dollar and provide rebounding opportunities to Asian currencies.
- Bearish divergence emerges in USD/JPY: The pair may face a technical correction as the bearish divergence surfaced, along with an ascending wedge, indicating the upside strength may be exhausting.
- Crude oil may have been overbought: Both WTI and Brent snapped a three-week winning streak. Oil prices faced technical resistance at their highs in November 2022. The prevailing risk-off sentiments have also pressed on the commodity markets in general.
Economic Calendar (25 Sep – 30 Sep )
