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ASX 200 Defies Gravity as Dow Jones Falls, Thailand Rate Decision in Focus

ASX 200 Defies Gravity as Dow Jones Falls, Thailand Rate Decision in Focus

Margaret Yang, CFA, Former Strategist

DOW JONES, ASX 200, THAI BAHT OUTLOOK:

  • US equities saw a mild pullback as vaccine optimism faded, energy and consumer staples lagged
  • Australia’s ASX 200 index opened marginally higher amid souring sentiment across the APAC region
  • Bank of Thailand may hold policy rate unchanged even though Thai Baht is at 10-month high
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Dow Jones, ASX 200, Asia-Pacific at Open:

Asia-Pacific stocks opened in a sour tone following a mild pullback in US equity markets. Another vaccine-led rally faded quickly as climbing coronavirus numbers worldwide showed no signs of receding any time soon. Imminent pandemic risk renders US stock indices, which are near their all-time highs, vulnerable to profit-taking activities. A rebound in the US Dollar appeared to exert downward pressure on commodity prices, with gold and crude oil prices falling modestly.

Earlier this week, encouraging vaccine news from Moderna gave risk assets another boost after a big rally propelled by Pfizer’s vaccine breakthrough. The US-based biopharmaceutical company said its mRNA technology-based coronavirus vaccine showed a 94.5% effective rate in an interim analysis of late-stage clinical trial. Two promising vaccines raised prospects for a faster pace of removal of lockdowns and easing of border controls, which will likely benefit the energy, transportation, material and industrial sectors more than defensive ones. This major sectoral rotation may continue to play out as a vaccine development progresses, albeit some short-term reshuffling is possible.

The Dow Jones, S&P 500 and Nasdaq indexes lost -0.56%, -0.48% and -0.21% respectively on Tuesday as profit taking ramped up. This may set a souring tone for Asia-Pacific stocks.

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Currency traders will be eyeing Bank of Thailand’s interest rate decision today. The central bank is facing a dilemma of a strong currency versus limited room for further interest rate cuts. The Thai Baht is trading at a 10-month high against the greenback, driven by capital inflows after the US election. Thailand’s Q3 GDP declined by a smaller-than-expected magnitude, reflecting an improved fundamental picture with the help of fiscal and monetary stimulus. Vaccine news have further brightened the outlook of the tourism-reliant economy, albeit a return of tourists in large numbers might not be seen any time soon.

Sector wise, 7 out of 9 Dow Jones sectors closed in the red, with 80% of the index’s constituents closing lower on Tuesday. Materials (+1.02%) and industrials (+0.38%) were among the best performers, whereas energy (-2.16%) and consumer staples (-2.05%) were lagging behind.

Dow Jones Sector Performance 17-11-2020

Source: Bloomberg, DailyFX

Asia-Pacific stocks look set to open mixed, with futures markets pointing to a lower start in Japan’s Nikkei 225 and China’s CSI 300. Australia’s ASX 200 and Hong Kong’s Hang Seng Index (HSI) look set to open modestly higher however.

On the macro front, inflation rates from the UK, Eurozone and Canada alongside EIA’s crude inventory data are among the top events today. Find out more on the DailyFX economic calendar.

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Dow Jones Index Technical Analysis:

Technically, the Dow Jones index has likely broken above a key resistance level at 29,530, which is its previous high last seen in February. Breaking this level may open the door for further upside with an eye on 29,850 (76.4% Fibonacci extension) and then 30,870 (100% Fibonacci extension). The index appears to be riding a bullish trend with its Bollinger Band width widening, reflecting strong bullish momentum.

S&P 500 IndexDaily Chart

ASX 200 Index Technical Analysis:

Technically, the ASX 200 index looks set to challenge a key resistance level at 6,530 – the 76.4% Fibonacci retracement. Breaking this level may open the room for further upside potential towards 6,600. The overall trend appears bullish-biased. An immediate support level can be found at 6,400.

ASX 200 Index Daily Chart

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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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