By Margaret Yang, CMC Markets
Equities –The US market finished higher as the Federal kept rates unchanged this morning. The positive sentiment is likely to spread over to Asian markets today, as the Nikkei 225 is trading 1% higher this morning. The market is now eyeing the BOJ’s decision on the policy rate and monetary base. In Singapore, investors are waiting for the peak of earnings season from today onwards. UOB, OCBC and Jardine C&C are going to announce their 1st quarter earnings this week. The Straits Times Index lost 20 points yesterday and rebounded 12 points this morning.
Commodities – Crude oil prices extended the rally on Wednesday. WTI oil futures closed 3% higher to $45.33, a fresh five-month high. Last night’s the DoE weekly crude oil inventories climbed 2 million barrels, less than expected. Gold was little changed at $1,245 whereas silver traded higher at $17.25 this morning.
Foreign Exchange (FX) – GBP/USD has rallied for a fourth day and is going to challenge a key resistance level at 1.4600. The FOMC’s decision to hold back on a rate hike in April has sent the greenback lower against its major peers. The Dollar Index fell to 94.48 this morning. USD/JPY stayed composed ahead of the BOJ meeting. The market is eyeing more easing from the BOJ while remaining sceptical towards the central bank’s policies. Any disappointment could change the direction of USD/JPY. AUD/USD plunged 1.8% to 0.7607 yesterday as lower-than-expected CPI data awaked speculation of a rate cut. EUR/USD advanced to 1.1300 due to a softer USD.
China’s credit market is facing headwind from a wave of rating downgrades after several companies missed bond payment this year. An explosion of credit risk is ahead as corporate earnings continue to deteriorate against a backdrop of slowing growth, overcapacity and unprecedented corporate debt levels. Among the default cases, some are state owned companies. This contradicts with market’s long-held belief that the SOEs are covered by local government.
This signals that credit risk is spreading from private companies to state owned companies and the local government are no longer the firewall. This has adversely affected investors’ confidence in the credit market and may lead to a further correction in the onshore bond market. If the SOE defaults become the “new norm”, it will become even more difficult for companies to borrow from the credit market, and ultimately may lead to liquidity risks.
Key Technical levels to watch:
- Immediate support level: 1.4330.
- Immediate resistance level: 1.4630.
- 70% RSI indicates near-term overbought.
Margaret Yang Yan, CFA, is a market analyst for CMC Markets Singapore.