ASX 200, Nikkei 225 Open Higher as Nasdaq 100 Leads a Defensive Play

 

NASDAQ 100, NIKKEI 225, ASX 200 INDEX OUTLOOK:

• ASX 200, Nikkei 225 indexes opened mildly higher amid a relatively quiet pre-holiday trading
• US House and Senate have passed a giant spending bill of US$ 2.3 trillion, in line with expectations
• Falling industrial metal and crude oil prices flag the risk of softer demand as pandemic wave hits.

MIXED US SESSION, FALLING METAL PRICES, STRONGER USD, ASIA-PACIFIC AT OPEN:

A defensive session led by the tech sector may set a mixed tone for Asia-Pacific markets on Wednesday, with the ASX 200 and Nikkei 225 index opening mildly higher amid a relatively quiet holiday week. It is worth noting that the passing of a US stimulus package failed to inspire positive reactions among risk assets, as the expectations have largely been priced in over the past few weeks. Falling industrial metals and crude oil prices, alongside a rebound in the US Dollar, suggest that overall sentiment remains weak and there seems to be near-term demand for safety.

Concerns over a new type of coronavirus strain, which is reportedly 70% more transmissible than the original, has weighed on the prospects for global economic recovery. The potential for wider spread may threaten further lockdown measures and travel bans between the UK and Europe in a time when both sides are trying to finalize a post-Brexit trade agreement. More than 40 countries have banned UK arrivals because of the new virus strain and further restrictions are likely if the situation worsens.

Tech outperformed cyclical sectors on Wall Street and this theme is likely to play out across Asia-Pacific markets as well. Investors weighed stricter lockdown measures before the gradual rollout of vaccines helps to bring down the number of infections. The Dow Jones and S&P 500 fell 0.67% and 0.21% respectively whereas the tech-led Nasdaq 100 gained 0.51%.

The rising US Dollar threatens stock markets’ astonishing rally, as the DXY US Dollar index has exhibited a strong negative correlation with the S&P 500 index over the past 12 months. More than 40% of the S&P 500 companies’ revenue comes from overseas markets, which infers that a stronger USD will translate into lower overseas income due to forex changes. Same for the emerging markets, which are sensitive to the strength of the US Dollar as it tends to influence capital flows.

For now, however, recent strengthening in the US Dollar appears more like a technical rebound driven by demand for safety. Profit-taking activity following the passing of the US stimulus package has probably played a part too.

DXY US Dollar Index

On the macro front, US existing home sales figures came in at 6.69 million, or -2.5% MoM. This marks the first MoM decline observed since May 2020 as a result of soaring house prices and constrains in supply. The US economy expanded at annualized rate of 33.4% QoQ in the third quarter, slightly higher than baseline forecast of 33.1%. Today, the US Core PCE price index, durable goods orders and Michigan consumer sentiment index are among the top events to watch for. Read more on DailyFX calendar.

US Existing Home Sales MoM (November)

Source: Bloomberg, DailyFX

Sector-wise, 9 out of 11 S&P 500 sectors ended lower, with 65.5% of the index’s constituents closing in the red on Tuesday. Energy (-1.74%), communication services (-0.99%) and financials (-0.96%) were among the laggards, while information technology (+0.86%) and real estate (+0.61%) outperformed.

S&P 500 Sector Performance 22-12-2020

Source: Bloomberg, DailyFX

Nasdaq 100 Index Technical Analysis

The Nasdaq 100 index is trending up within the “Ascending Channel” formed since early November, forming higher highs. The overall trend remains bullish-biased, as suggested by upward-sloped 20-, 50- and 100-Day Simple Moving Average (SMA) lines. Its upward momentum, however, appears to be faltering as the MACD indicator trends lower after the formation of a “Death Cross” in early December. Immediate support and resistance levels can be found at 12,530 and 12,790 respectively.

Nasdaq 100 Index – Daily Chart

Nikkei 225 Index Technical Analysis:

The Nikkei 225 index has been trading in a “range-bound” condition since early December as highlighted in red color below. Immediate support and resistance levels can be found at 26,350 and 27,000 respectively. Breaking this support may open the door for further losses with an eye on 26,000 for support.

Nikkei 225 Index – Daily Chart

ASX 200 Index Technical Analysis:

The ASX 200 index has likely broken the “Ascending Channel” this week (chart below) and the overall momentum has turned bearish as suggested by the MACD indicator. An immediate support level can be found at 6,570 – the lower Bollinger Band. Price has pierced below the middle Bollinger Band (also the 20-Day SMA), suggesting that near-term trend has likely turned bearish.

ASX 200 Index – Daily Chart

--- Written by Margaret Yang, Strategist for DailyFX.com

Nasdaq 100, S&P 500 Hit New Highs on Bipartisan Stimulus Bets. ASX 200 to Rise?

NASDAQ 100, S&P 500, ASX 200, US STIMULUS, COVID VACCINE – ASIA PACIFIC INDICES BRIEFING...

• Nasdaq 100, S&P 500 hit new all-time highs on vaccine, stimulus bets
• APAC equities could rise, Chinese CPI may dim PBOC normalization
• ASX 200 pushing for a key resistance break, but momentum is fading

WALL STREET TRADING SESSION RECAP

Following a mixed European session, equities pushed higher during Tuesday’s Wall Street trading hours. The tech-heavy Nasdaq Composite (+0.50%) outperformed the S&P 500 (+0.28%), both hitting new all-time highs as the Dow Jones rose 0.35%. The VIX market ‘fear gauge’ declined towards lows seen at the end of November, signaling fading prospects of volatility despite recent surges in coronavirus cases.

Sentiment was bolstered by a couple of developments. First, there were rising prospects of a Covid vaccine rollout in the US. The Food and Drug Administration (FDA) reported that the vaccine by Pfizer and partner BioNTech met expectations of the agency’s guidance. It was about 95 percent effective in preventing the disease as well as found safe. That may open the door to emergency authorization use soon.

Stimulus bets was another driver of the rosy mood. Senate Majority Leader Mitch McConnell opened the door to setting aside business liability protections if Democrats drop demands for state government aid in the $908 billion bipartisan bill. Meanwhile, Treasury Secretary Steven Mnuchin presented a separate $916b stimulus pitch on the behalf of the Trump Administration that includes state aid and $600 checks per eligible adult.

Taking a look at sectoral performance in the Dow Jones, 80% of constituents closed higher. The top 3 performing sectors were materials (+2.52%), energy (+0.86%) and health care (+0.71%). Meanwhile, the worst-performing one was consumer discretionary (-0.17%).

DOW JONES SECTORAL PERFORMANCE

Data Source: Bloomberg

NASDAQ 100 TECHNICAL ANALYSIS

Nasdaq 100 futures extended gains, pushing above the 12197 – 12465 resistance zone. That has exposed the 38.20% Fibonacci extension at 12886. Maintaining the focus to the upside is a short-term rising trendline from late October. In the event of a material turn lower, keep a close eye on the medium-term 50-day Simple Moving Average (SMA).

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NASDAQ 100 FUTURES – DAILY CHART

WEDNESDAY’S ASIA PACIFIC TRADING SESSION – ASX 200, NIKKEI 225, KOSPI, CHINESE CPI

Asia Pacific equities are trading broadly higher during morning Wednesday trade, following the rosy lead from Wall Street. Dow Jones and S&P 500 futures are also rising. As such, regional equities such as Australia’s ASX 200 and Japan’s Nikkei 225 may extend gains. South Korea’s Kospi index is attempting to recover Tuesday’s 1.62% drop which may have been as a result of profit-taking following persistent gains.

Reports crossed the wires that Speaker of the House Nancy Pelosi and Senate Minority Leader Chuck Schumer said Mnuchin’s proposed plan was ‘unacceptable’. For now, traders seem to be focused on the bipartisan relief bill as well as Covid vaccine distribution. This update may come back into play down the road if more gridlock delays much-needed fiscal support.

Chinese CPI turned negative both y/y and m/m in November, the first time since 2009. That has poured cold water on PBOC normalization bets which may offer a boost to the Shanghai Composite and CSI 300. Later today, Canada’s TSX Composite index is eyeing the BoC rate decision. For more data, check out the DailyFX economic calendar.

ASX 200 TECHNICAL ANALYSIS

The ASX 200 is attempting to climb above the November high at 6713, exposing the 6893 inflection zone. Negative RSI divergence is showing that upside momentum is fading. This may precede a turn lower, placing the focus on the inflection zone from August 2019 between 6396 and 6475. The broader uptrend could hold via the 50-day SMA in the event of a material pullback.

ASX 200 – DAILY CHART

Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com