Morning Dew - 27 January 2014

Emerging Risk

While concerns over China’s recent manufacturing slip-up and that the Fed has started its tapering process were already pretty much factored in by the markets, the emergence of risks coming out of emerging economies is relatively fresh for investors.

Argentina’s central bank has decided to abandon its support to its currency. Currency controls have been scrapped, allowing the purchase of dollars for savings.

In South Africa, rand fell 1.8% on the back of mining issues while Ukraine suffered from political turmoil. Turkey is still struggling after been hit by corruption scandal, which sapped the investors’ confidence. Its lira intervention efforts have been unable to lift the currency.

All the emerging economies’ problems originated mainly on the Fed’s decision to taper its $85bn stimulus, sending money out of emerging economies.

Fed In Focus (Again)

The FOMC is set to meet next week and the market will be keen to see how much the stimulus reduction will be this time. The first tapering was $10bn, taking the remaining monthly purchases to $75bn. It is likely that the Fed will keep the same pace at $10bn. Despite improving life signs of the US economies, the Fed may not want to rush things by going aggressive.

If however, the Fed opts to refrain from cutting the stimulus, the market may rebound from recent slump.

Technically Speaking...

JCI sunk to end at 4,437 on Friday as all sectors turned red.

Toppish MACD and RSI as well as stochastics, as well as declining volume suggest that the index is vulnerable to correction.

For now, the support comes in at around 4,430 (the upper-EMA band), but this could be easily sliced through on Monday, putting the next support at 4,380 and 4,335 (the middle and lower EMA curves). We cannot rule out a straight dive to the latter next Monday.

With 4,430 is most likely gone, the upper-EMA band will be the closest resistance, followed by 4,510.

Week Ahead

Friday’s selloffs in US and Europe were ill omens for JCI’s outlook next week. The week is likely to start on a wrong foot. The FOMC meeting will be in focus, while developments in the emerging economies engulfed in turmoil (such as Brazil, South Africa, Argentina, Turkey and Ukraine) are also going to be watched keenly by investors. 

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