DOW JONES, NIKKEI 225, ASX 200 INDEX OUTLOOK:
- Technology stocks plummeted, pulling down Wall Street benchmarks from recent highs
- Rising commodity prices bolstered the energy and material sectors, underpinning the Dow Jones index
- Hang Seng and ASX 200 opened mixed as investors awaited Powell’s testimony for clues about policy guidance
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Tech Rout, Yields, Commodities, Powell Speech, Asia-Pacific at Open:
Asia-Pacific markets are poised for a cautious start on Tuesday following a mixed session from Wall Street. The closely watched US 10-year Treasury yield climbed to a fresh 12-month high of 1.394 before pulling back to 1.367 this morning, setting a sour tone for risk assets. Yields across the globe are rising on inflation expectations and reflation hopes as vaccine progress and an impending fiscal stimulus package bolstered the likelihood of a post-Covid recovery. Higher yields may have undermined the appeal of stocks, resulting in profit-taking activity in the highly-valued technology sector in particular.
The Nasdaq Composite lost 2.46% to hit a three-week low, and the S&P 500 index was down 0.77%. Rising crude oil and metal prices propelled a rally in energy (+3.46%) and material (+2.70%) sectors, helping the Dow Jones Industrial Average to close marginally higher. A diverged sectoral performance suggests that investors are getting increasingly wary about tech stocks’ rich valuations as reflation trades appeared to gain traction.
With inflation and rising yields increasingly concerning traders, Fed Chair Jerome Powell’s testimony late today will be closely eyed for any clues about future tapering. In view of encouraging vaccine progress around the globe and robust US retail sales figures in January, it might be difficult to argue that the economy remains weak and risks are skewed to the downside. However, any hint about tapering may be illusive as the job market has a long path to achieve full employment and core PCE inflation is well below the Fed’s 2% target. Nonetheless, it would be critical to see how Powell addresses surging yields and inflation expectations, which might inhibit the central bank from carrying out further easing measures.
Chart by TradingView
Commodity prices continued to trade higher as market participants attempted to price in rising demand for raw materials as the world recovers from the pandemic. Rising commodity prices may further strengthen the inflation outlook and lead longer-dated yields higher. WTI crude oil prices advanced 5.5% overnight, and copper prices leaped 4.17%. Agricultural products including coffee, cotton and sugar were all trading higher as well.
The US Dollar (DXY) index retreated for a third day to 90.07, falling below the 50-Day Simple Moving Average line and hit a six-week low.
Hong Kong’s Hang Seng Index (HSI) lost 1.06% on Monday as the technology sector suffered a broad selloff. With little change in the fundamental ground, recent retracement may be viewed as another technical pullback after tremendous gains were obtained over the last four months. The HSI is up more than 11% year to date, marking it one of the best performing major equity indices during this period.
Australia’s ASX 200 index opened marginally higher, led by energy (+2.23%), real estate (+1.11%) and industrials (+0.86%) sectors, while information technology (-2.97%) and consumer discretionary (-1.28%) were lagging. Japanese markets are closed for a holiday.
Looking back to Monday’s close, 6 out of 9 Dow Jones sectors ended higher, with 46.7% of the index’s constituents closing in the green. Materials (+3.46%), communication services (+3.38%) and energy (+2.70%) were among the best performers, whereas consumer discretionary (-1.47%) and information technology (-1.24%) were trailing.
Dow Jones Sector Performance 22-02-2021
Source: Bloomberg, DailyFX
( 03:02 GMT )
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Dow Jones Index Technical Analysis
The Dow Jones index resumed its upward trajectory after returning to the “Ascending Channel”. Prices continued to move higher within the upper Bollinger Band, pointing to further upside potential with an eye on 31,910 – the 76.4% Fibonacci extension level. The upper Bollinger Band may serve as a dynamic resistance level, whereas the 20-Day Simple Moving Average (SMA) line may be viewed as an immediate support. The MACD indicator has formed a bearish crossover, suggesting that upward momentum is fading and a technical correction may follow.
Dow Jones Index – Daily Chart
Hang Seng Index Technical Analysis:
The Hang Seng Index hit a strong resistance level at 31,080 (76.4% Fibonacci retracement level) and has since entered a consolidative period. The MACD indicator formed a bearish crossover as prices consolidated, hinting at bearish momentum in the near term. An immediate support level could be found at around 30,000 (the 50.0% Fibonacci extension). Breaking below this level will probably lead to a deeper pullback towards the next support level at 29,500 (the 38.2% Fibonacci extension).
Hang Seng Index – Daily Chart
ASX 200 Index Technical Analysis:
The ASX 200 index is testing the lower bound of the “Ascending Channel” for support as prices entered a consolidative period. The 50-Day SMA may prove to be an immediate support as well. The overall trend remains bullish-biased as suggested by upward-sloped moving averages. An immediate resistance level can be found at 6,935 (the 200% Fibonacci extension). The MACD indicator has formed a bearish crossover, suggesting that near-term momentum remains bearish-biased.
ASX 200 Index – Daily Chart
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— Written by Margaret Yang, Strategist for DailyFX.com
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