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S&P 500 Gains on Dovish Fed, Asia-Pacific Stocks May Follow

S&P 500 Gains on Dovish Fed, Asia-Pacific Stocks May Follow

Margaret Yang, CFA, Strategist

S&P 500, STRAITS TIMES, MSCI EMERGING MARKET INDEX OUTLOOK:

  • The S&P 500 index reached an all-time high for a fifth day, boosted by Powell’s dovish speech
  • The Straits Times,Hang Seng and Nikkei 225 indices are set to open higher, following US leads
  • The MSCI Emerging Market index continued its upward trajectory, led by China and India markets

S&P 500 Index Outlook:

Fed Chairman Jerome Powell’s speech at the Jackson Hole economic policy symposium painted an accommodative monetary policy outlook, as the central bank may allow inflation to overshoot before stabilizing at a long-term target of 2%. Therefore, the Fed is likely to keep its monetary policy accommodative, in the years to come, even if the economy faces overheating and rising inflation in the recovery phase. This may lead to stronger stocks and a weaker currency. A clear cut message has also removed uncertainties in investors’ mind.

The US Treasury yield curve rose in all maturities following Powell’s speech, reflecting a rising inflation outlook. The US Dollar index had a fairly volatile session before settling down at around 93.0.

Besides, a decent US weekly jobless claims figure also underpinned market confidence. There were 1,006k unemployment claims filed last week, falling from the previous week’s reading of 1,104k. The overall trend is on a fairly smooth declining shape, which suggests improving job market sentiment.

US Weekly Jobless Claims

S&P 500 Gains on Dovish Fed, Asia-Pacific Stocks May Follow

Source: Bloomberg, DailyFX

Sector-wise in the S&P 500 index, financials (1.74%), real estate (+1.37%) and healthcare (+0.78%) were outperforming, whereas communication services (-2.19%), consumer discretionary (-0.72%) and materials (-0.24%) were lagging. It is wirth noting that 63% of the S&P 500 components ended higher, a greater improvement compared to the previous days when a small fraction (28-30%) of the stocks lifted the entire index.

S&P 500 Index Sector performance 27-8-2020

S&P 500 Gains on Dovish Fed, Asia-Pacific Stocks May Follow

Source: Bloomberg, DailyFX

Technically, the S&P 500 index is riding a bullish trend as shown in the ‘Ascending Channel’ below. An immediate resistance level could be found at 3,530 – the 127.8% Fibonacci extension, while an immediate support level could be found at 3,400 (100% Fibonacci extension). The RSI indicator, however, has shown signs of being overbought, suggesting a technical pullback is possible in the days to come.

S&P 500 IndexDaily Chart

S&P 500 Gains on Dovish Fed, Asia-Pacific Stocks May Follow

Straits Times Index Outlook:

Singapore’s Straits Times index (STI) stock benchmark is consolidating within a ‘Descending Triangle’ as shown in the chart below. The index has found a strong support at 2,500, which has been tested multiple times and held well. Breaking above the 2,600 (38.2% Fibonacci retracement) resistance will open the room for more upside towards the next resistance at 2,720 (50% Fibonacci retracement).

The STI is among the worst performing indices in the region year-to-date, as Singapore’s small and open economy took a hit by Covid-19 headwinds. Last night’s Jackson Hole symposium has cleared the monetary policy skies, which may help to boost confidence in the Singapore market.

Straits Times Index Daily Chart

S&P 500 Gains on Dovish Fed, Asia-Pacific Stocks May Follow

MSCI Emerging Market Index Outlook:

The MSCI Emerging Market index stock benchmark is extending its bullish trajectory, led by Chinese and Indian stock markets. The Fed’s dovish message overnight may give it another boost on Friday.

Technically, the index faces an immediate resistance level at 1,140 (100% Fibonacci extension), followed by 1,182 (127.8% Fibonacci extension. An immediate support level could be found at 1,113 (20-Day Simple Moving Average) and then 1,093 (76.4% Fibonacci extension).

MSCI Emerging Market Index Daily Chart

S&P 500 Gains on Dovish Fed, Asia-Pacific Stocks May Follow
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--- 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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