Asian markets have generally fallen in the week of 23 to 27 July, paring gains made in the previous week (16 to 20 July). Fortunately, losses in the week were reduced after comments from European Central Bank (ECB) President Mario Draghi sparked off a late week rally.
Table 1: STI’s past 2 week price performance vis-à-vis other indices
Source: Bloomberg, Ernest’s compilation
Looking forward to this week (30 July – 3 August), all eyes would be on the Federal Reserve Meeting on Wednesday and ECB Meeting on Thursday. Stocks have typically risen ahead of such meetings. According to a study conducted by the Federal Reserve Bank of New York, US stocks have outperformed over short term government bonds in the period of 24 hours before such bank meetings. (Nevertheless, the same study did not report the performance of the stocks vis-à-vis short term government bonds 24 hours after such bank meetings.)
In addition to the aforementioned two central bank meetings, Bank of England (BOE) also meets on Thursday. Another meeting that would be keenly awaited would be the meeting between ECB President Mario Draghi and Bundesbank President Jens Weidmann. The exact date of that meeting is not disclosed but it is reportedly to be held in the coming days before the ECB meeting on 2 August.
Other economic data include manufacturing PMI from China, Italy, Spain, Europe, UK and US on Wednesday. The US would also be releasing the ADP Non-Farm Employment Change and Non-Farm Employment Change on Wednesday and Friday respectively. Thus, it is indeed an action-packed week where there may be significant volatility! (Please refer to “Summary of Economic Calendar for the Week ahead (SIN time)” below for some of the important economic events to take note.)
Despite several high profile US companies that will report results this week, they are likely to take a back seat by the aforementioned central bank meetings. Examples of companies that will be reporting results this week are AIG, Pfizer, Procter & Gamble, Mastercard and General Motors.
As mentioned in my previous bi-weekly writeup (16 July), I pointed out that STI may challenge the highs recorded in the February to April period (around 3,030 to 3,035) in the coming weeks. It promptly challenged on 19 July with an intraday high of 3,040 before closing at 3,029. Barring any “bullish, game changer” policy announcements from the Fed and ECB this week, STI faces immediate resistance at 3,035 to 3,040 and significant resistance between 3,040 to 3,105 (gap seen on 5 Aug 2011).
As such, it may be better to adopt a nimble trading strategy (at least for a portion of your portfolio) to buy on weakness and sell on strength. OSIM (which I have emailed to my clients before its results) is a case in point where it weakened from $1.23 on 20 July to $1.185 on 26 July. Thereafter it gaps up upon release of its 2Q12 results on 26 July. With the barrage of positive analyst reports after its 2Q12 results, it is likely to open higher on 30 July (perhaps around $1.24). Readers who are interested in OSIM can email me at firstname.lastname@example.org to obtain the analyst reports for their own research purpose.
All the best for your investment and trading!
Please note that the above is my personal opinion and may not cater to your specific risk profile. The questions of when to buy/sell and what to buy/sell differ greatly between individuals. Furthermore, it is extremely important to bear in mind that the market outlook is never static. It can suddenly change when there are big events unfolding in the market – some events can happen as quickly as overnight.
STI supports and resistances are:
Support 1: 2,966
Support 2: 2,954
Support 3: 2,946
Support 4: 2,935
Support 5: 2,920 – 2,923
Resistance 1: 3,035 – 3,040
Resistance 2: 3,044
Resistance 3: 3,063
Resistance 4: 3,079
Resistance 5: 3,106
*Supports and resistances are not static levels. They may be subject to change daily.
Summary of Economic Calendar for the Week ahead (SIN time)
30 Jul, Mon: (EUR) Spanish Flash GDP / Europe Retail PMI / Italian 10-y Bond Auction;
31 Jul, Tues: (JPY) Manufacturing PMI; (EUR) German Retail Sales / French Consumer Spending / Italian Monthly Unemployment Rate / Europe Unemployment Rate; (USD) Personal Spending & Income / S&P/CS Composite-20 HPI / Chicago PMI / CB Consumer Confidence;
1 Aug, Wed: (CNY) Manufacturing PMI / HSBC Final Manufacturing PMI; (EUR) Spanish & Italian Manufacturing PMI / Europe Final Manufacturing PMI; (GBP) Manufacturing PMI; (USD) ADP Non-Farm Employment Change / ISM Manufacturing PMI / Construction Spending / Crude Oil Inventories / FOMC Statement;
2 Aug, Thurs: (AUD) Trade Balance; (EUR) Spanish Unemployment Change / ECB Meets; (GBP) Construction PMI / BOE Meets; (USD) Unemployment Claims / Factory Orders;
3 Aug, Fri: (CNY) Non-Manufacturing PMI; (EUR) Spanish & Italian Services PMI / Europe Final Services PMI / Europe Retail Sales; (GBP) Services PMI; (USD) Non-Farm Employment Change / ISM Non-Manufacturing PMI;
*All economic data especially China data (if any) are subject to changes without notice. The above list is not exhaustive. I have merely listed the economic data that I feel has more impact to the market.
**The above is part of the weekly newsflash that I send out to my clients weekly on a weekend.
Information sources: Various sources such as Bloomberg, Dow Jones, forex calendar, Reuters, SGX, Yahoo Finance, and Business Times etc.
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