Asian markets start the week on solid footing

Monday, July 14, 2014

Asian markets managed to build on Friday’s gains, starting the week on a positive note as investors were encouraged back into risk assets. Abating crude oil supply disruptions in the Middle East and rising global consumer confidence has supported benchmark equity indices throughout the first half of the year, with the second half off to a promising start. Both the Nikkei and TOPIX rallied higher during overnight trading as market participants were encouraged by firmer macro data. Industrial production gained 0.7% in May m/m from a previous reading of 0.5% m/m which supported markets higher ahead of the two day BOJ monetary policy review starting today. Investors remain optimistic that the central bank will extend its accommodative stance while elsewhere in the region, Chinese stocks rallied higher ahead of Q2 GDP and industrial production data due out later this week.

Market participants may experience increased trading volatility this week as earnings season continues with Citigroup, JPMorgan Chase, Johnson & Johnson and Yahoo! among the most notable releases presenting their Q2 earnings today and tomorrow. As if earnings season wasn’t enough to keep investors busy, it seems the disagreement among Fed presidents regarding the unemployment outlook as a trigger for bringing forward the timing of an interest rate rise will add to the choppy trading outlook. Philly Fed president Charles Plosser is among the more hawkish Fed officials, arguing that economic data is already indicating a need to tighten policy. On the other side of the fence sit Chicago Fed president Charles Evans and Atlanta Fed president Dennis Lockhart, who both argue that there is still excess capacity in the labour market and combined with low inflation the central bank is justified in waiting until H2 2015 or later. The lack of unity among Fed officials may confuse market participants as they fight for a clear picture between fed comments, company earnings and macro data.

After posting steady gains towards the end of last week, the dollar index has hit resistance at the 50 day MA around 80.220, with early morning trading seeing it slip back towards 80.150. Further weakness could be seen throughout today’s session ahead of Yellen’s semi-annual testimony to the Senate committee on banking, housing and urban affairs tomorrow afternoon. The testimony could provide market participants with a snapshot of the Fed’s outlook and eventual withdrawal of stimulus two weeks before the July FOMC meeting.

 

Shanghai Composite rallies higher ahead of Q2 GDP released later this week

SHSZ300 Index Shanghai Shenzhen 2014 07 14 08 25 14

DXY pares recent gains ahead of Yellen's testimony

DXY Curncy DOLLAR INDEX SPOT 2014 07 14 08 25 27

Events for today

0530

JP

May

Industrial Output

0530

JP

May

Capacity Utilisation

1000

EZ

May

Industrial Production

Topics: GDP, US Fed, Equities, DXY
More from: Kash Kamal