Market Outlook (Week beginning 30/6/14)

US markets had a strong close on Friday with all major indices and treasury yields finishing strong. Some major movers who had a good run were Netflix and Facebook. Both have advanced 12% in the last quarter. The Standard & Poor’s 500 index climbed 4.7% to 1,960.96 for the 3 months, poised for a sixth quarterly gain, the longest stretch since 1998. The Dow Jones Industrial Average (INDU) also posted a gain of 2.4% to finish at 16,851.84. The NASDAQ Composite Index also recorded gains of 4.7%. All three charts below for the indices show a steady uptrend with some limited consolidation. Volatility is evaporating amid stock gains, as the Chicago Board Options Exchange Volatility Index (VIX) touched a seven year low. During the past week, Treasury Bonds pullback but still posted a weekly rally as can be observed from the chart below. However a critical point to be noted is the last candle on the Treasury Bonds chart was a mid-sized ‘abandoned baby’ or ‘shooting star’ which can signify a strong reversal. The growth in bond yield is good indication on forecasting economic growth and interest rates. The bond yields being experienced are consistent with growth data and the expectation of mild inflation.

The MSCI All-Country World Index has climbed 4.1% since March, reaching a record on June 19. The Stoxx Europe 600 Index has rallied 2.3%. In the East, the MSCI Asia Pacific Index is up 5.1%, leading the pack. The FTSE was in mild correction but still on the track of a major downtrend as indicated by the chart below. However the FTSE might have bottomed out as two candles prior we see a quasi ‘dragonfly’ or ‘long legged doji’. This is a strong indication of a trend ending and consolidation. The data coming out of Europe and Japan is consistent with analyst forecast on the upturn in the global economy. However a point to be noted is Europe’s recovery is still lagging. Economic data coming out of Japan was mixed. The Nikkei Average retreated 1.4%. However Japan’s official data showed the country’s unemployment data dropped to 3.5% in May, the lowest level since 1997. Thus the jury is still out on Abeconomics.

Precious metals were trading sideways all of last week. Most of the major FX pairs followed suit. Gold and Silver showing signs of consolidation based on the charts below. However the last candle on the Silver chart is a good size doji. However as neither is it at a top or bottom, thus it carries less significance. The price of crude oil is in mild decline as depicted by the chart below due to the continued unrest in the Middle East. Most of the major currency pairs traded in consolidation within limited ranges during the week. Based on the USD/JPY chart below, the pair has been in a downtrend for several weeks. However based on fundamentals, further material downside risk is limited.

For the coming week we can expect some material equities and currencies movement as there are a number of significant Economic data releases. This data release should bring some much needed volatility into the markets. We should also see more price action in the FX markets. The VIX or volatility index will be a good monitor on breakout economic activity. A bullish week to look forward to marring any shock events.

Sources credited:

www.morningstar.com

www.bloomberg.com

www.forex.com

www.dailyfx.com

www.investopedia.com