JAKARTA - Indonesian stocks were left vulnerable to losses on Monday following the soft trade data which dampened sentiment and eroded risk appetite. Exports and imports declined on an annual basis in July consequently renewing concerns over the health of the largest economy in Southeast Asia. Despite the recent development, overall sentiment towards Indonesia remains somewhat positive with last week’s impressive retail sales displaying signs of economic recovery.
Data in Q2 has repeatedly exceeded forecasts with second quarter GDP hitting 5.18% while optimism over an increase in capital outflows from the tax amnesty bill continues to heighten hopes of an uplift in 2016 GDP. Although the Jakarta Composite Index has edged lower on Monday, gains could be retrieved in the future if domestic data continues to show signs of economic improvement.
Global stocks elevated by sentiment
Stock markets were propelled by oil’s resurgence on Monday with most major arena’s hovering around yearly highs as the renewed risk appetite attracted investors to riskier assets. Asian stocks excluding the Nikkei were mostly positive and further gains could be expected if optimism over central banks intervening attracts investors to riskier assets. European markets started on a solid footing with the FTSE100 buoyed by Sterling vulnerability.
Although Wall Street concluded depressed on Friday following the weak US retail sales, gains could be achieved today if the positive contagion from Asia and Europe trickles into America. The engine behind the impressive stock market gains remains sentiment rather than fundamentals and such raises questions over the sustainability of the current market rally.
Japan Q2 GDP disappoints
Sentiment towards the Japanese economy was dealt a heavy blow following the soft second quarter GDP of 0.2% which rekindled concerns over the health of the world’s third largest economy. Weak consumer spending and falling exports amid Yen’s resurgence heavily eroded Japans GDP while the ongoing global uncertainties continued to expose the nation to downside risks. With inflation following a tepid path, expectations have already mounted over the Bank of Japan implementing further monetary stimulus to jumpstart economic growth.
The Yen could appreciate further if risk aversion from global growth concerns encourages bulls to attack. From a technical standpoint, the USDJPY is bearish on the daily timeframe and a breakdown below 101.00 could open a path towards 100.00.
Sterling remains heavily pressured
Sterling bears were on the offense on Monday with the GBPUSD sliding towards 1.2900 as the mounting expectations over the Bank of England cutting UK interest rates to near zero encouraged bears to attack. Sentiment remains bearish towards the Sterling with further declines expected in the future if the post-Brexit uncertainty continues to haunt investor attraction towards the currency.
Investors may direct their attention towards Tuesday CPI which could offer further clarity on how the UK economy is faring post-Brexit. Inflation has been notoriously low in the UK and if Tuesdays release follows this pattern then the Pound could be left vulnerable to further losses. From a technical standpoint, the GBPUSD is bearish as there have been consistently lower lows and lower highs. A decisive break down below 1.2900 could open a path towards 1.2800.
WTI rebound towards $45
WTI Crude displayed an incredible rebound on Monday with prices lurching towards $45 as expectation over a potential OPEC production freeze deal encouraged bulls to attack. It seems oil has become extremely sensitive and the ongoing talks of production freezes have created sharp speculative boosts in oil prices.
Although the current upside gains are impressive, WTI still remains fundamentally bearish with the oversupply concerns encouraging bears to drag prices lower. If the informal meeting in September concludes without a deal in a place, then Oil prices could trade lower towards $35. From a technical standpoint, bears need to break below $42 for a path towards $40.
Commodity spotlight – Gold
Gold was placed on a chaotic roller coaster ride last week with prices violently swinging between losses and gains following the fluctuating US interest rate hike expectations. Risk aversion kept the metal buoyed but Dollars resurgence ensured prices were depressed. Although Friday’s soft US retail sales figure provided some inspiration to the bulls, this was short-lived with prices remaining in a fierce tug of war. From a technical standpoint, bulls need to keep above $1315 to maintain the daily uptrend.
Written by Lukman Otunuga, Research Analyst at FXTM