U.S Inflation Moderated, Stocks Rally

Weekly Wrap Content for the week of Aug 12:

1. Week 32 major indexes performance;

2. Week 32 US sector indexes performance;

3. Major indexes weekly charts of support and resistance levels;

*Contents/Data including information from various public market reports

U.S

For the week ended Aug 12, U.S stocks closed solidly higher to cap off a week that saw the S&P 500 notch its fourth-straight weekly gain. Equities appeared to be spurred on by the positive sentiment brought about by a round of cooler inflation data this week, which has helped ease expectations of how aggressive the Fed will remain going forward.

Since the beginning of the third quarter (June 30), equity markets have had a stellar move higher, with the S&P 500 up over 12%, cutting its losses for the year nearly in half. Similarly, the technology-heavy Nasdaq is up about 17%, bringing its losses for the year down to about -17%. And this week's inflation readings have only helped add to the positive momentum we have seen over the past six weeks or so. Refer to major indexes’ weekly performance tables below.

Key highlights for the week and outlook:

1.    Inflation. Headline inflation came in nicely below expectations for the month of July, largely driven by lower fuel and energy prices. In July we had seen average U.S. gasoline prices fall by around 8% and WTI crude oil down by 11% over the month of June. This supported a headline CPI inflation that came in at 8.5%, versus expectations of 8.7%, and below last month's 9.1% reading. 

2.    Markets expect the fed funds rate to climb to the 3.50% - 3.75% range in 2022, before pausing in 2023. Markets now expect a 50-basis-point rate hike (0.50%) at the September meeting versus a 75-basis-point hike just earlier this week. The expectation now is for another 50-basis-point hike in November, followed by a 25-basis-point hike in December, bringing the fed funds rate to a 3.50%-3.75% range before pausing.

SPX sectors in play

All 11 sectors in the S&P 500 advanced this week, led by Energy stocks(XLE), Consumer Staples(XLP) lagged. Refer to below sector indexes weekly performance table.

Technically all three major indexes hit new high since 2 May, Nasdaq and SPX recorded their 4^th weekly gains.

DJI weekly chart

SPX weekly chart

Nasdaq weekly chart

China/HK

China’s stock markets ended the week on a mixed note as a flare-up in coronavirus cases offset news of a record trade surplus last month and a central bank report signaling support for growth. The broad, capitalization-weighted Shanghai Composite Index(SSE weekly Chart) added 1.5% and the blue chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, inched up 0.8%.

The spike in coronavirus infections coupled with a continued housing market slowdown are considered among the largest risks to China’s economy in the near term. Coronavirus cases in China climbed to a three-month high, roughly half of them recorded in the southern coastal island of Hainan, which was widely locked down last week. China reported a record trade surplus of USD 101.26 billion in July, surpassing the USD 90 billion consensus forecast.

Hang Seng index(.HSI weekly chart) edged lower 0.1% this week. Technically, the index formed a directionless weekly candlestick within previous’ week. A breakout above 20250 weekly high would give early signal for a bullish reversal.

Singapore

STI index (STI weekly chart) eased 0.4% this week after three-week up streak. Technically, STI weekly chart appears still bullish, immediate resistance 3307 weekly high, and downside support at 3235- its 200dma level.