US markets shrugged off the hotter-than-expected PPI (producer price index) inflation data which market watchers attributed to the teeny-weeny dovish tinge in the meeting notes of September’s Federal Open Market Committee. As a case in point, the 10-year US treasury yield (UST10Y) is down to 4.57% from a high of more than 4.87% on an intra-day basis on Sept 30. The decline in US risk-free rates was sufficient to boost the US equities market.
However, based on the technical chart of the SPDR S&P 500 ETF, which mirrors the performance of the S&P 500 Index (SPX), the chart pattern looks like prices have broken below a minor double top, at the neckline of US$440 ($599). At present, US$440 is also the confluence of the 50- and 100-day moving averages. As such, the area around this level is likely to provide some resistance to the rebound. Interestingly, the chart shows heavy volume on the breakdown which occurred on Sept 25 versus the relatively light volume that accompanied the rebound. It is safe to assume that the resistance level is likely to stop the rebound move.
To turn convincingly bullish, the SPDR S&P 500 ETF would need to break above US$440 using the 3% rule, which would mean heading for US$450. The SPX itself ended at 4,376 on Oct 11, so breaking above 4,400 does not look impossible. But, with volume contracting, it is more likely that the SPDR S&P 500 ETF heads towards US$422, where the 200-day moving average at US$421 is likely to prevent a further decline.
In terms of performance, the SPX is up 22% since the start of the year compared to the Straits Times Index which is down marginally in the same period.
The chart of the STI ETF shows that prices are likely to move within a range, reflecting the performance of the Straits Times Index (STI). For STI ETF, resistance appears at $3.30 and support is at $3.20. The STI itself has tested 3,150 three times, establishing this as a firm support. Resistance is in the 3,300 range, confirming that the STI ETF may not get much beyond $3.30.
A tinge more dovish
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
The FOMC minutes said that to “achieve maximum employment and inflation at the rate of 2% over the longer run, members agreed to maintain the target range for the federal funds rate at 5.25% to 5.5%”.
In determining the extent of additional policy firming that may be appropriate to return inflation to 2% over time, the Fed members concurred that they would take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
On Oct 11, S&P Global Market Intelligence revised upwards its forecast of US real GDP growth for 2023 from 2.3% to 2.5% and for 2024 from 1.5% to 1.6%. “The upward revision for 2023 reflects unexpected strength in consumer spending and a surge in net exports that encouraged us to revise up our estimate of third-quarter growth by 1.2 percentage points, to a stunning 5.2%,” said Joel Prakken, co-head, US Economics, S&P Global Market Intelligence.
See also: Continued steps towards a Chinese New Year rally
For the US 3Q2023 growth of 5.2% could be running a bit too high for the Federal Reserve. The next two FOMC meetings are on Oct 31-Nov 1 and Dec 12-13. By the October meeting, US GDP figures will have been released.
Some economists had expected a tad slower growth with the auto workers’ strike. This is likely to be offset by the US defence sector and its supply chain. Demand for US weapon systems is believed to be rising sharply due to their effectiveness in various low-grade wars (see story on page 28).
The other counterbalance to stronger-than-expected growth in 3Q2024 in the US is China where according to FOMC minutes “signs of strain in the property sector increased, and optimism about growth diminished further, on net, although broader markets, including global commodity markets, did not appear to show elevated concern about China-related risks”.
