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Hang Seng Index Edges Higher as Dow Jones Rebounds With Crude Oil

Hang Seng Index Edges Higher as Dow Jones Rebounds With Crude Oil

Margaret Yang, CFA, Strategist

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

  • US equity indices rebounded mildly as a stronger ISM Manufacturing PMI reading boosted confidence
  • Saudi Arabia surprised markets with a production cut, sending WTI prices to 10-month highs
  • ASX 200 index trades lower while Hang Seng higher; Bitcoin back to US$ 34k

PMI, Crude Oil, Bitcoin, Asia-Pacific Stocks at Open:

A much stronger-than-expected ISM Manufacturing reading boosted investor confidence overnight. The reading came in at 60.7 versus forecast of 56.6, marking its highest reading seen since August 2018. It suggests that manufacturing activity in the US is expanding at a strong pace despite of another pandemic wave and lockdowns. The US Dollar index fell to a fresh two-and-half year low of 89.44 despite upbeat PMI readings, as markets perhaps tend to believe that more stimulus and monetary easing might be needed to foster a recovery from the pandemic, which will likely become a medium-term drag on the Greenback.

Stocks in Hong Kong, mainland China and South Korea are positioned to open higher on Wednesday following positive US leads, whereas Australian shares traded lower at open as virus concerns weighed on sentiment. Strong south-bound inflows via the Hong Kong-Shanghai stock connection propelled the Hang Seng Index recently, which has come to its highest level since February 2020. A post-Covid recovery in China and fever for technology stocks may continue to lead the benchmark indexes higher. The Shanghai and Shenzhen Composites have both surged to their multi-month highs with a significant pickup in trading volume recently.

The energy sector might outperform on the back of a strong gain in crude oil prices overnight, after Saudi Arabia surprisingly announced a unilateral production cut amid disagreements among the oil cartel and its allies. Saudi’s move, however, reflects a softer demand outlook as Covid-19 cases continued to climb in major economies and led to tighter border controls and travel restrictions. Read more from my earlier oil report here.

US ISM Manufacturing PMI

Hang Seng Index Edges Higher as Dow Jones Rebounds With Crude Oil

Source: Bloomberg, DailyFX

Commodities and cryptocurrencies are leading the gains since the beginning of this year, buoyed by a weakening USD and ultra-loose monetary environment. Gold prices advanced to an eight-week high of US$ 1,950 with strong upward momentum. Bitcoin prices hit the 34,000 mark this morning, reversing a temporary pullback saw earlier this week. Strong demand from China appears to be driving industrial metal prices, with copper and nickel hitting multi-year highs and iron ore regaining strength.

Copper

Hang Seng Index Edges Higher as Dow Jones Rebounds With Crude Oil

Chart by IG

Sector-wise, 7 out of 9 Dow Jones sectors ended higher, with 70% of the index’s constituents closing in the green on Tuesday. Materials (+3.26%), energy (+2.70%) and industrials (+1.39%) were among the best performers, whereas healthcare (-0.20%) and consumer staples (-0.19%) were lagging behind.

Dow Jones Sector Performance 05-01-2021

Hang Seng Index Edges Higher as Dow Jones Rebounds With Crude Oil

Source: Bloomberg, DailyFX

Dow Jones Top 10 Stock Performance 05-01-2021

Hang Seng Index Edges Higher as Dow Jones Rebounds With Crude Oil

Source: Bloomberg, DailyFX

Dow Jones Index Technical Analysis:

Technically, the Dow Jones is edging higher within an “Ascending Channel” as highlighted in the chart below. The uptrend is well-supported by its 20-Day Simple Moving Average (SMA) line, which is at 30,220 now. Immediate support and resistance levels can be found at 29,854 (76.4% Fibonacci extension) and 30,870 (100% Fibonacci extension) respectively.

Dow Jones IndexDaily Chart

Hang Seng Index Edges Higher as Dow Jones Rebounds With Crude Oil

Hang Seng Index Technical Analysis:

The Hang Seng Index (HSI) likely broke a “Descending Channel” (chart below) last week with strong upward momentum. The index has also cleared a key resistance level at 27,270 – the 161.8% Fibonacci extension, thus opening the door for further upside potential with an eye on 28,050 – the 200% Fibonacci extension.

Hang Seng Index Daily Chart

Hang Seng Index Edges Higher as Dow Jones Rebounds With Crude Oil

ASX 200 Index Technical Analysis:

The ASX 200 index looks set to breach the “Ascending Channel” lower with downward momentum prevailing. An immediate support level can be found at 6,567 - the lower Bollinger Band. An immediate resistance level can be found at 6,660 – the 20-Day Simple Moving Average (SMA) line.

ASX 200 Index – Daily Chart

Hang Seng Index Edges Higher as Dow Jones Rebounds With Crude Oil

--- 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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