Equity markets in Asian are moving higher as investors begin to price in the increasing possibility that policy makers in various regions will implement measures to stimulate growth to stall the recent declines in stock prices. The MSCI Asia Index is now trading at its lowest levels in a year, despite the latest 0.9 percent increase, and is now seen slightly above the 110 level. This is following the 2.1 percent loss seen yesterday completing the run-off from the negative performance seen last week but this latest market speculation is leading many investors to start to shift toward a buy on dips strategy.
More broadly speaking, however, the MSCI is down more than 15 percent from the highs seen at the end of February after a decline of 10 percent in May. On a monthly basis, this is the biggest loss since the third quarter of 2008, which is when the market was reacting to the bankruptcy at Lehman Brothers. Most of these losses have been propelled by declines in macro economic data releases and the Friday Non Farm Payrolls out of the US showed the latest indication of this. These data releases are adding to the arguments that the debt situation in Europe is spilling into other areas of the globe.
In other areas, central bank activity will start to become the main focus. The first example will be the Reserve Bank of Australia, where there is some analysts are pricing in the change of a reduction in interest rates (by as much as 50 basis points, to 3.25 percent). This would follow a substantial rate cut that was put in place at the previous meeting, and this speculation is helping to encourage a rally in Australian stock markets (the ASX 200) by nearly 1.5 percent.
Australian markets have seen some intense selling pressure of late, given the slowing momentum in Chinese manufacturing, and this is seen as a negative for Australian commodities exporters. Other central bank news will likely come from the next round of Congressional testimony from US Fed Chairman Ben Bernanke, and most of the attention will focus on whether or not the Federal Reserve intends to inject stimulus as a means for encouraging growth prospects. Also keep an eye out for the results from the next ECB meeting, where markets are expecting a rate cut of as much as 1 percent.
The GBP/USD is attempting to make a bounce out of the 1.5250 area but the bounce is starting to stall and we might not see enough of a bounce to initiate sell positions before the next run lower. If we do see a rally into 1.5640, sells will be triggered, but the key area to watch is now at 1.5275 and a downside break here will accelerate losses. The MACD reading is still firmly in negative territory, so the break of support is the more likely scenario.
Silver is still caught within its slowly developing ascending triangle and resistance is now clearly defined at the triple top at 28.80. A break here will complete the triangle and suggest further gains into the 29.45 area first. Support below is now seen at 27.30.