Dow Jones 30, Nasdaq 100, Biden Stimulus Package, Coronavirus Vaccinations – Talking Points:
- US equity markets may continue gaining ground on the back of positive Covid-19 vaccination progress and the prospect of additional fiscal stimulus.
- Dow Jones aiming higher as price hovers above key trend support.
- Nasdaq 100 eyeing yearly high after bursting back above key resistance.
Asia-Pacific Recap
Equity markets gained ground during Asia-Pacific trade as coronavirus vaccination progress and fiscal stimulus hopes buoyed market sentiment. Australia’s ASX 200 index surged 1.5% after the Reserve Bank of Australia moved to extend government bond purchases, while Japan’s Nikkei 225 rose 0.97%.
In FX markets, the cyclically-sensitive NZD, CAD and NOK largely outperformed, while the haven-associated JPY slipped lower against its major counterparts. Gold and silver prices fell despite yields on US 10-year Treasuries dipping 1 basis point lower. Looking ahead, the Euro-area’s GDP release for the fourth quarter of 2020 headlines the economic docket alongside speeches from multiple members of the Federal Reserve.
US Equity Indices to Rise on Biden Stimulus, Vaccination Progress
US benchmark equity indices may continue to claw back lost ground in the coming days, as positive vaccination progress and fiscal stimulus hopes notably firm market sentiment.
Democrats in both the House and the Senate filed a joint budget resolution in their respective chambers yesterday evening, which paves the way for President Joe Biden to pass the majority of his proposed $1.9 trillion stimulus package with a simple majority. The use of the budget reconciliation process would allow Congress to approve the provision of an additional $1400 in direct stimulus payments, allow passage of $350 billion in state and local aid and extend enhanced unemployment benefits through September.
Of course, President Biden has been keen to work on a bipartisan basis and met with a group of 10 Republican senators to discuss their $600 billion counter proposal. However, with multiple Democratic senators rejecting the significantly smaller proposal, it seems relatively likely that the Administration will move forward in a partisan fashion to pass Biden’s $1.9 trillion stimulus package.
The notable decline in coronavirus cases, in tandem with a marked increase in the rate of vaccinations, may also bolster risk appetite in the near term. The US has currently administered over 31.1 million vaccination doses, while the 7-day moving average tracking local coronavirus infections has decreased by over 100,000 since peaking at 255,00 on January 11.
In fact, more Americans have received at least one dose of a Covid-19 vaccine that have been infected with the novel coronavirus. This suggests that a return to some level of normality in the coming months could be on the table and further bolster risk appetite. The likely provision of additional stimulus, and positive health developments, probably result in further gains for the Dow Jones and Nasdaq 100 indices in the coming weeks.
Dow Jones Index Futures Daily Chart – Perched Precariously Above Trend Support
DJIA futures daily chart created using Tradingview
From a technical perspective, the Dow Jones Industrial Average (DJIA) appears poised to claw back lost ground, as prices continue to respect the uptrend extending from the March 2020 nadir.
However, the development of the RSI and MACD hint at swelling bearish momentum, as both indicators dip below their respective neutral midpoints.
That being said, a retest of the yearly high (31188) looks on the cards if buyers can drive price back above the 21-day exponential moving average (30626). A daily close above that probably bringing the 50% Fibonacci expansion level (32170) into the crosshairs.
Conversely, sliding back below psychological support at 30,000 could trigger a pullback to range support at 29450 – 29600. Penetrating that likely carves a path for sellers to challenge the October 2020 high (28846).
Nasdaq 100 Futures Daily Chart – Bullish Engulfing Hints at Further Upside
Nasdaq futures daily chart created using Tradingview
The tech-heavy Nasdaq 100 also appears poised to extend its recent gains, after forming a Bullish Engulfing candle above the trend-defining 50-day moving average (12730).
With price tracking above all 6 moving averages, and the RSI eyeing a push above 60, the path of least resistance seems skewed to the topside.
Ultimately, a daily close above the 50% Fibonacci (13575) is required to signal the resumption of the primary uptrend and open the door for buyers to challenge the psychologically imposing 14000 mark.
However, if the index is unable to hurdle the 13500 mark, a short-term pullback towards the 34-EMA (12921) could eventuate.
-- Written by Daniel Moss, Analyst for DailyFX
Follow me on Twitter @DanielGMoss
