Analysis for the last week of August

Salam,

First of all, I would like to wish all my dear muslim friends - 'Selamat Berpuasa dan beribadat di sepanjang bulan Ramadhan'.

Review of last week
At the start of the week, we saw USD strengthened against other currencies as questions on recovery arose from weak US consumer confidence, driving up risk everse sentiment. However towards the end, stock markets recovered helped by several factors that included oil reserve shock in the US which spurred EUR due to its high correlation with crude oil. EUR also gained on the back of strong PMI data. German services PMI surged to a 16-month high of 54.1 while French manufacturing PMI hit a 15-month high of 50.2, signaling an expansion in activity after growth had contracted for more than a year.

Finally, the strong rebound was also due to Bernanke’s remark at the end of the week that “the prospects for the return to growth appear good” – signaling growth is on its way. He also took pride in the fact that the Fed has spared no effort and that things would have been much worse if they did not act the way they did.

Fundamental Analysis

Outlook for this week: While we have seen investor sentiment steadily rise over the months, with the S&P 500 just recently hit new highs for the year; there are signs that optimism is flagging. Taking a look at the volume data that accompanies the steady trend in equities, there is a clearly diminishing trend in conviction behind this move. I would go for sell orders on corrections opportunities this week. Stock markets needs to feed on positives news to support its rally between now and the 4Q09 where we’ll see investors coming in (after summer holiday) with more liquidity.

Cable – slightly bearish
The primary driver for cable this week would be risk sentiment instead of economic data due out this week. Revised 2Q GDP is due out on Wed – barring any meaningful shock revision, the impact on cable is expected to be alredy priced in. CBI Realized Sales (Thu) is expected to report a better figure although it would be still negative (-11) – this data is a leading indicator for consumer spending. A lower figure indicates low level of sales volume.

Fibre – bullish
After impressive results from PMI data last week, our attention would be on German’s Ifo business climate data out on Wed – it’s a leading indicator of business condition such as spending, employment and investment, where 7,000 companes were surveyed for the data. Economists are expecting an improvement to 89.1 vs 87.3 last month.

On Thursday, the German GfK survey of consumer confidence is projected to rise to a more than 1-year high of 3.6 in September from 3.5 and on Friday, Euro-zone economic confidence is anticipated to increase to a 10-month high of 78.0 in August from 76.0. Overall, a steady stream of positive news could be the impetus to drive fibre to fresh 2009 highs.

Aussie – bullish
Key macro data for AUD this week includes Construction Work Done (Tue) – expected -2.7% vs -3.7% last mth and Private Capital Expenditure (Wed) – improvement to -4.7% vs -8.9% last mth. Both data are important as it indicates the health of the economic and if the actual data came out as expected, we could see Aussie making new highs for 2009.