Benchmark Dow falls as fear of a rate hike rises

Fundamental Perspectives

Non-farm payrolls in the United States increased by 315,000 jobs in August. The unemployment rate climbed to 3.7 percent. The benchmark Dow Jones index fell for the third straight week as fear of a rate hike crept into the market.

After the Jackson Hole meeting, Federal Reserve Chairman Jerome Powell said interest rates would remain high for some time to contain inflation in the United States.

He said the economy will suffer from the rising cost of borrowing. Stock markets have been falling since the beginning of last week.

US company Nvidia has been ordered by the US government to stop chip shipments to China. A new regulation has been put in place to license the export of chips to China. Nividia’s spokesperson said the company did not receive an exemption for such exports after the request.

Europe has started to boost its energy supply as winter approaches. Western politicians and analysts felt that dependence on Russian energy supplies was coming to an end.

Technical forecast

The US Dollar/Japanese Yen hit a 24-year high at 140. This week, the trend may continue to climb above 141. We expect the bulls to likely hit 142 in the near future as we approach the next FOMC meeting. Support on the downside stands at 138.50.

The Euro/US Dollar closed below 1.00 on Friday. We expect the initial range to be between 0.99 and 1.00. However, a break below 0.99 will likely lead to 0.97 as the next target if dollar strength persists.

The British pound/US dollar slipped last week to 1.15 heading into the weekend. We expect the bears to likely attempt 1.14 as key support before trading sideways from 1.14 to 1.16. Beware of slipping below the 1.14 support as this will trigger a free fall in the market.

WTI crude prices fell last week due to the dual impact of the rising greenback and Europe’s reduced reliance on energy supplies from Russia. We are targeting that first support will likely emerge at US$86.00/bbl and limit below US$90/bbl. Beware of breaking below US$86/bbl as it will likely fall lower to US$84/bbl.

Crude palm oil futures (FCPO) on Bursa derivatives fell as prices for most edible oils fell last week. General commodities were capped due to the renewed resurgence of the dollar. The November 2022 futures contract was settled at RM3,901 per metric ton on Friday.

The market is likely to fall again and find support at RM3m700 per metric ton. The overall range will likely be between RM3,700 and RM4,000 per metric ton.

The price of gold revisited US$1,700 an ounce heading into the weekend. We anticipate that the market move will likely trade in the US$1,680 to US$1,720 per ounce region. Mixed sentiment is expected due to the rising USD, while support for gold will likely emerge strong at the US$1,680/oz level. Traders are advised to remain cautious.

Silver prices fell last week and traded below US$19 an ounce. We anticipate that the trend will likely be contained from US$17.50 to US$19 an ounce amid mixed trading activity. Some buying interest will likely emerge in the market as most traders will now find silver at low prices. Appropriate risk control is advised if the aforementioned support is breached.

Dar Wong has over 30 years of experience trading and hedging global financial markets. The opinion belongs only to him. He can be contacted at [email protected]

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