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Nikkei 225 May Drop on US Jobless Claims, Hang Seng Enters Consolidation

Nikkei 225 May Drop on US Jobless Claims, Hang Seng Enters Consolidation

Margaret Yang, CFA, Strategist

NIKKEI 225, HANG SENG, CHINA A50 INDEX OUTLOOK:

  • Nikkei 225 index may fall at 22,550 as US stocks dropped on jobless claims data
  • Hang Seng Index is set to open lower and re-test a key support at 25,000
  • FTSE China A50 index may consolidate alongside the rest of Asia

Nikkei 225 Outlook:

Japan’s Nikkei 225 stock market benchmark may fall when resuming trade next Monday after a long weekend. This is mainly attributed to US headwinds as the initial weekly jobless claims count climbed for the first time since 27th March, to 1.416 million. It is also higher than the market forecast of 1.30 million. This probably also marks a resurgence of unemployment, alongside a second Covid-19 viral wave in the ‘sun belt’ states of the US.

A sobering US trading session may have set a downbeat tone for Asia stocks at the open. But this seems more like a healthy correction rather than a major reversal of the bull market, as US corporate earnings continue to deliver more positive surprises. More than 80% of the S&P 500 companies that have already reported have beaten market forecasts.

US Jobless Claims – March to July 2020

Nikkei 225 May Drop on US Jobless Claims, Hang Seng Enters Consolidation

Source: Bloomberg, Dailyfx

Technically, Nikkei 225 futures are consolidating around a key support level at 22,550 – where its 20-Day Simple Moving Average (SMA) lies. Breaking below this level could open room for more downside towards 22,480 (10-Day SMA) and then a major support at 22,000.

Nikkei 225 IndexDaily Chart

Nikkei 225 May Drop on US Jobless Claims, Hang Seng Enters Consolidation

Hang Seng Index Outlook:

The Hang Seng Index (HSI) stock market benchmark was mostly consolidating this week, coming to a key support level at 25,000. Negative US sentiment overnight may dampen risk appetite in the Greater China markets on Friday, with Hang Seng set to underperform due to rising Covid-19 infections in the city.

Sector wise, Commerce & Industry continued to outperform Utilities and Properties names, with Tencent (+3.34%) alone contributing to half of Hang Seng Index’s daily gains on Thursday. Besides Tencent, HKEX (+4.04%) and AIA (+1.25%) were also doing the heavy lifting.

Hang Seng Index Sector Performance 23-7-2020

Nikkei 225 May Drop on US Jobless Claims, Hang Seng Enters Consolidation

Technically, the index has found some support at 25,000 – the 50% Fibonacci retracement. Breaking below this critical support could lead to further downside towards 24,100 – the 38.2% Fibonacci retracement.

Hang Seng IndexDaily Chart

Nikkei 225 May Drop on US Jobless Claims, Hang Seng Enters Consolidation

China A50 Index Outlook:

The FTSE China A50 Index stock market benchmark has entered into consolidation after a major breakout seen on 6th July. The index has found some support near 15,000 – the upper bound of an ‘Ascending Channel’ that it traced out from mid-March until early-July.

The political uncertainties surrounding the closure of China’s Houston consulate have more or less been digested by market participants on Thursday, and thus will no longer serve as a major concern. Therefore, China A shares may exhibit resilience against US headwinds due to their relatively low historic correlation.

China A50 IndexDaily Chart

Nikkei 225 May Drop on US Jobless Claims, Hang Seng Enters Consolidation

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

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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