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Dow Jones Erases Intraday Slump, ASX 200 and Hang Seng May Fall

Dow Jones Erases Intraday Slump, ASX 200 and Hang Seng May Fall

Margaret Yang, CFA, Former Strategist

DOW JONES, HANG SENG, ASIA-PACIFIC MARKET OUTLOOK:

  • Asia-Pacific markets opened mixed after Wall Street stocks erased deep intra-day losses, the USD fell
  • Brexit talks remain the top event risk after the US moves closer to pass a stimulus and spending bill
  • Financials sector shares soared as the Fed gave banks the green light to resume share buybacks
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Wall Street, Brexit Talks, Banking, Asia-Pacific Stocks Outlook:

Last night investors saw a rollercoaster trading session for equities, forex and commodities as risk assets pared deep intra-day losses while the US Dollar erased significant gains. The wild market moves overnight were perhaps owing to both stretched market valuations and thin liquidity conditions, which can exacerbate market movements even with a small catalyst. Besides, still rapidly climbing coronavirus cases and the resulting lockdown measures serve to suppress risk appetite and remind investors that Main Street is not as prosperous as Wall Street looks.

The US Congress moved a step closer to pass a Covid-relief stimulus package and a spending bill that are needed to shelter small businesses and unemployed individuals from the coronavirus pandemic before vaccines are widely available. The talks between the UK and EU over their post-Brexit trade relationship have drawn much attention. They appear stalled with less than 10 days left to reach an agreement, rendering Sterling exposed to heightened volatility. This could potentially ignite another round of panic selling across multi-asset classes.

Financials (+2.84%) were the best performing sector on Monday as the Fed gave US banks the green light to resume share buybacks. This signals an improved fundamental picture for banks as the economy is poised for a recovery in 2021 with greater earnings certainty. Strong banking performance overnight could buoy trading in Hong Kong-listed HSBC and Standard Chartered Bank today, and thus underpin the broader Hang Seng Index (HSI) stock benchmark.

Asia-Pacific stocks look set to open in a cautious mode after wild swings on Wall Street stocks overnight. Futures in Japan, Australia, Hong Kong, Malaysia and India are pointing to a lower open on Tuesday morning, but the banking sector could be an exception. The ASX 200 index opened 0.5% lower, with healthcare and financial stocks outperforming, whereas the energy sector is the worst performer.

On the macro front, Australia’s retail sales figure, Germany GfK consumer confidence index, final Q3 GDP growth rates from the UK and the US are among the top events today. Market foresees a 33.1% QoQ rebound in the US economy for the third quarter, following a deep 31.4% contraction in the second quarter (chart below).

Source: Bloomberg, DailyFX

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Sector-wise, 9 out of 11 S&P 500 sectors closed in the red, with 73.3% of the index’s constituents ending lower on Friday. Financials (+2.84%) and consumer discretionary (+0.62%) were doing the heavy lifting, whereas communication services (-1.36%), energy (-1.26%) and materials (-1.04%) were lagging behind.

Dow Sector Performance 21-12-2020

Source: Bloomberg, DailyFX

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Dow Jones Index Technical Analysis:

Technically, the Dow remains within an “Ascending Channel” as highlighted in the chart below. The uptrend was well-supported by its 20-Day Simple Moving Average (SMA) line, although some short-term pullbacks in between were observed. Immediate support and resistance levels can be found at 29,850 (76.4% Fibonacci extension) and 30,870 (100% Fibonacci extension) respectively.

Dow Jones IndexDaily Chart

Hang Seng Index Technical Analysis:

The Hang Seng Index (HSI) is testing the 50-day Simple Moving Average (SMA) line with a bearish-biased momentum. The index trended lower within the lower Bollinger Band for most of December with consecutive lower highs. A key support level can be found at 26,10-, where the 50-day SMA and lower Bollinger band intercept. Breaking this key level may open the door to further losses with an eye on 25,730 – the 100% Fibonacci extension.

Hang Seng Index Daily Chart

ASX 200 Index Outlook:

The ASX 200 index appears to have broken the “Ascending Channel” yesterday, opening the room for further downside potential from a technical point of view. Immediate support and resistance levels found at 6,560 and 6,750 respectively – the lower and upper Bollinger Band. Traders should be vigilant about a potential MACD divergence, which could signal a trend reversal. The MACD indicator has also formed a “Death Cross”, suggesting that upward momentum is fading.

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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