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Wednesday, May 10, 2017

There's No Recession, but a Market Correction Could Cause One

  Before last Friday’s employment release, some pessimistic observers feared a recession was near. The latest GDP release from the BEA showed real output growth slowed to a crawl in the first quarter, rising at an annual rate of only 0.7 percent. And that followed the report on March employment that had shown an abrupt slowdown in job growth. Alongside this economic news, the previously soaring stock market levelled off.
     But the fear among pessimists of a looming recession, which was never convincing, was put to rest by last Friday’s employment report showing 211,000 net new jobs in April, and a very healthy average monthly job growth of 185,000 over the first four months of the year.
    As a simple summary of the economic expansion’s health, we should accept the above trend growth in employment over the nearly flat real GDP growth. And as a general rule, we should prefer job growth over real GDP growth as a measure of overall economic activity because he GDP estimates may not accurately correct for seasonal variations and may not properly capture the changing composition and pricing of what we produce and consume.
    Going behind the aggregate data, there have been few signs of an overall weakening in the economy. Though some sectors, such as autos, are softening, others, such as defense, construction and many services, are still growing steadily. And the global economy is now less of a drag on the U.S. than it has been. Until recently, weak growth abroad weighed on the U.S. expansion through the exchange rate and trade channels. In recent weeks, the dollar appreciation has stopped. And the present IMF forecasts for 2017 include continued better growth in Europe despite the uncertainties of Brexit and the immigration turmoil, and continued rapid expansion in the emerging market economies. Janet Yellen recently testified that the Fed believes the slowdown in GDP growth is temporary and that it expects to stay on its course of raising policy interest rates further during 2017.
     Even if the expansion is presently healthy, it has already lasted 8 years, which is old by historical standards. And even before the unemployment rate dropped to April’s 4.4 percent, many analysts believed the economy had reached full employment, which would limit the potential for further economic expansion. But estimates of how far a healthy expansion can go are highly uncertain. The economy’s growth potential is somewhat greater than many had thought. Through much of the present expansion, labor force participation rates declined faster than demographics alone would predict. In recent quarters, as job markets have tightened, the decline in participation has ceased.               Furthermore, there is mixed evidence from recent decades about how low unemployment can go without generating accelerating inflation. The Fed is alert to both sides of its mandate, and the fact that it is not raising rates further now but still expects to do so during 2017 indicates it sees and welcomes continued expansion in the economy.
       Do these economic prospects tell us anything useful about the stock market and do stock market prices inform our forecasts for the economy? The economy and the stock market affect each other in many ways. A strong expansion raises profits and opportunities for new investment. A rising stock market increases wealth and the optimism of both consumers and businesses. All these connections occur with variable lags. And, in general, market declines do not cause economic declines. But a big market drop could affect wealth and expectations enough to noticeably depress the economy. And some observers reason the surge in the importance of ETFs as a way of participating in the stock market could magnify downward shocks for many investors and, in turn, have more effect on the economy. While mutual funds attracted mainly long term investors, ETFs attract investors who are more likely to trade actively.
        The great bull market of the 1990s ended when what we now call the dot-com bubble finally popped. Today, the prices of social media stocks and others related to the Silicon Valley industries (FANG is shorthand for four dominant firms in this category, Facebook, Apple, Netflix and Google), have risen to levels that resemble the star stocks of that earlier boom. Because of their success in the stock market, these high flying stocks are heavily weighted in ETFs indexed to a broad stock average or to growth or high tech stocks. The fear is that, if a correction starts in these stocks, the rush of selling by ETF investors could greatly steepen the stock price decline.
        Would that be enough to push the economy into recession? It did in 2001 and the damage would likely be greater in today’s market.

Source: http://www.realclearmarkets.com/articles/2017/05/09/theres_no_recession_but_a_market_correction_could_cause_one_102676.html

Thursday, March 23, 2017

TECH TARGETS: EUR/USD, GBP/USD, USD/JPY, AUD/USD, NZD/USD – UOB

EUR/USD: Neutral: Odds for a move above 1.0870/75 are not high.
The 1.0825/30 level that we have talked about since Thursday was finally met with an overnight high of 1.0825. Shorter-term upward momentum is slowing down and while a move above 1.0825/30 would not be surprising, the odds for a break above last December high of 1.0870/75 are not high. Support is at 1.0745 but only a move back below 1.0715 would indicate that a short-term top is in place.
GBP/USD: Bullish: To take half-profit at 1.2545/50.
GBP hit an overnight high of 1.2507 before closing on a strong note. The bullish phase that started on Monday  is still intact. However, from a shorter-term perspective, the rally appears to be running ‘too fast, too soon’ and those who are long should look to book half-profit at 1.2545/50, just below the 1.2570 high seen in late February. Stop-loss is unchanged at 1.2340.
AUD/USD: Neutral: In a 0.7600/0.7730 range.
There is not much to add as we continue to view the current movement as part of a 0.7600/0.7730 consolidation phase even though the immediate bias is for a probe lower towards the low end of the expected 0.7600/0.7730 range. Looking further ahead, as long as there is no sustained drop below 0.7600, we expect the current consolidation to be resolved to the upside.
NZD/USD: Neutral: In a 0.6950/0.7090 range.
As highlighted yesterday, NZD has likely made a short-term top at 0.7090 earlier this week. The current price action is viewed as part of a consolidation phase that could last for several days. Overall, expect sideway trading from here, likely between 0.6950 and 0.7090.
USD/JPY: Neutral: No signs of stabilization just yet.
While we expected USD to extend its decline towards 111.05/10, the pace of the drop and the ease of which this level is taken out came as a surprise (overnight low of 110.71). Despite being severely oversold, there is no sign of stabilization just yet and further weakness towards the psychology level of 110.00 is not ruled out. Overall, this pair is expected to stay under pressure unless it can move above stay above 112.50.

Wednesday, March 22, 2017

M Asia Trade Tech Targets: EUR/USD, AUD/USD, NZD/USD, USD/JPY - UOB

EUR/USD: Neutral: Recovery to extend to 1.0825/30


It took a while but EUR finally managed to move above 1.0800 and hit an overnight high of 1.0819. This level is just below the solid 1.0825/30 resistance and as indicated in recent updates, is unlikely to yield so easily. That said, in view of the strong daily closing yesterday, a move above this level is not ruled out but shorter-term indicators are severely overbought and the odds for a move above last December high of 1.0870/75 are not high. On the downside, support is at 1.0745 but only a move back below 1.0715
AUD/USD: Neutral: In a 0.7600/0.7730 range.
AUD eked out a fresh high of 0.7750 but was unable to hold on to its gain. The subsequent sharp drop from the high indicates that the upward pressure post-FOMC has eased off. A temporary top is likely in place at 0.7750 and AUD is deemed to have moved into a sideway-trading range. That said, the immediate bias is for a probe lower towards the low end of the expected 0.7600/0.7730 consolidation range.
NZD/USD: Neutral: In a 0.6950/0.7090 range.
The rebound target of 0.7085 that was first highlighted last Thursday was exceeded as NZD hit a high of 0.7090 yesterday. However, the subsequent sharp drop from the high was unexpected. An interim top is likely place and NZD is deemed to have moved into a consolidation phase, likely between 0.6950 and 0.7090.
USD/JPY: Neutral: Oversold but room for extension to 111.05/10.
The sudden acceleration lower yesterday that took out the strong 111.65/70 support was unexpected. The decline is severely oversold especially from a shorter-term perspective but there is room for further extension to 111.05/10. Key short-term resistance has moved lower to 112.50.
Source: United Overseas Bank Global Economics & Markets Research

Tuesday, March 7, 2017

SEA market ready to rate hike ahead of Fed meeting

Southeast Asian stock markets ended little changed in dull trade on Tuesday as investors were cautious ahead of a widely expected  interest rate hike by the U.S. Federal Reserve next week amid concerns about President Donald Trump's economic policies. 
Fed Chair Janet Yellen has signalled that the central bank might raise interest rates at its next meeting on March 14-15, and may move faster after that than it has in years.
After Janet Yellen's speech last week, the market will be ready for a rate hike when the U.S. Federal Reserve meets next week unless this Friday's jobs report is a disaster.

Consumer prices rose 3.3 percent but was within the range the central bank had expected, the statistics agency said.
Singapore shares rose after two sessions of falls, buoyed by financials and industrials. Real estate company CapitaLand Ltd gained 2.3 percent, while automotive conglomerate Jardine Matheson Holdings Ltd climbed 0.6 percent.

Wednesday, February 22, 2017

SGX & KLCI TRADING CALLs for Today

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SGX TRADING CALL 
#BUY CAPITACOM TRUST AT 1.560 TGT 1.600 SL 1.520 
#BUY GENTING SINGAPORE AT 0.980 TGT 1.015 SL 0.945 
KLCI TRADING CALL
#BUY BTM AT 0.315 TGT 0.355 SL 0.275 
#UPDATE: MUHIBAH MDE HIGH OF 2.560 OUR TARGET MADE HIGH OF 2.560 OUR TARGET ACHIEVED. KINDLY BOOK PROFIT IN IT 
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