From my friend's remisier: last night's drops of US stocks and today's declines of Asian-Pacific equities are meant to correct investors' expectation of dovish statement by Bernanke after FOMC meeting last night.
That expectation had led to about 3% rebound of STI early this week.
However Fed sounded a bit more optimistic on the sustainability of US economic recovery which may lead to tapering of QE3 from 4Q13 onward, resulting in the selloff of stocks worldwide.
This selloff may last for a couple of days and do watch for the key support of 3100 which was the recent low for STI.
The 200-day simple moving average is at 3194 which had been broken today and will be the immediate resistance for STI.
HSBC flash manufacturing PMI for Chinese SMEs,which was released in the morning, did not help market sentiments either as it came out at 48.3 (forecast 49.4) in Jun, down from 49.2 in May.
Probably it may test 3100 the second time which I think it will hold before rebound again to 3195 - 3200 level as it maybe overdone and oversold by then.
The fact is that US economy is improving, albeit gradually, but may pick up pace by the end of the year, should bring back some stability and senses to the market after a while.
If STI closes and traded below 3100 for 2 consecutive days, do exercise caution as next target will be 3000.
Just my opinion. Thank you so much for your support and all the best to you.
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Investors are expecting monthly bond purchases to reduce from $85 bil to $65 bil in 4Q13, but this will depend whether the economy does improve along the lines that Fed expect.
They will continue to reduce the once of purchases in measured steps thru the 1st half of 2014, ending QE around mid-2014 only if the economy continue to improve.
Even after the end of bond purchases, Fed will continue to hold its target interest rate bear zero as long as unemployment remains above 6.5% (7.6% now) and the outlook for inflation doesn't exceed 2.5% (1.6-1.7% now based on annualized PCE).
It is still very accomodative even though Fed no longer print extra $85 bil/mth as by then those positive sentiment and momentum generated by improving macro economic fundamentals will be able to support higher valuation if stock mkts going forward.
In the event during these periods, conditions turn for the worse, Fed will stop this tapering and will maintain the purchases and may even increase them.
As I mentioned earlier, do watch out for the key support of 3100.
If STI breaks this level and traded below for 2 days, selling will increase and probably test range of 2880 - 2890. Just my opinion. Thank you.
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