S&P 500, ASX 200, NIKKEI 225, ASIA-PACIFIC MARKET OUTLOOK:
- The Nasdaq, S&P 500 and Dow Jones rebounded 2.55%, 1.61% and 0.76% respectively
- The CME raises margins on Comex silver futures by 18% amid heightened price volatility
- US daily Covid-19 cases fell to two-and-half month low; the US Dollar index advanced
Tech-led rally, Silver, Pandemic, Asia-Pacific Stocks Outlook:
Wall Street stocks had a relief rebound on Monday, led by information technology and consumer discretionary sectors as investors took the recent market pullback as an opportunity to buy dips. Around 80% of S&P 500 companies closed higher. The share price of GameStop tumbled 30% and extended declines in the afterhours trade, suggesting that retail frenzy is probably cooling amid trading restrictions imposed by brokers. Meanwhile, IHS Markit data showed that short interests in GME plunged to 39% of free-floating shares from 114% in mid-January, reflecting a receding pressure in the squeeze.
On the commodity market, CME raised margin requirements for Comex silver futures by 18% to US$ 16,500 per contract from US$ 14,000 with effect on February 2nd. This came after silver future prices advanced more than 6% on February 1st to hit an eight-year high against the backdrop of Reddit day traders’ call for a short squeeze on the precious metal. Higher margin requirements mean that traders need to top up more collateral to hold their positions, potentially containing excessive speculative activity. Silver futures edged slightly lower on Tuesday’s open.
Chart by IG
Asia-Pacific stock markets look set to trade higher after kicking off a strong start to February. The Hang Seng Index surged 2.15% on Monday with robust performance observed in the information technology sector. This trend could carry on as Tencent and Alibaba ADRs were closed at around 2% premium over their HK counterparts. Alibaba will announce Q4 earnings after market close on Tuesday.
The ASX 200 index advanced 0.82% in early trading hours, led by information technology (+2.43%), industrial (+1.49%) and energy (+1.27%) sectors, whereas defensive-linked healthcare (-0.86%) and consumer staple (-0.35%) sectors registered smaller losses. Mining stocks, namely BHP and Rio Tinto, gained amid higher precious metal prices as well as a broad ‘risk-on’ tone.
The Nikkei 225 index is poised for a two-day gain with an eye on 28,300 at open. Better-than-expected earnings from domestic companies, as well as a weakening Japanese Yen, show signs of upbeat market sentiment.
It is worth noting that the DXY US Dollar Index has climbed to 91.00 - the highest level seen in two months. The US saw its trend of daily Covid-19 cases declining after the rollout of coronavirus vaccines, with 112,722 cases reported on January 31st. This marks the lowest reading observed since November 15th, 2020. Improving pandemic situations may point to further US Dollar strength that may undermine emerging market equities and currencies.
Source: cdc.gov
Sector-wise, all 11 S&P 500 sectors finished higher, with 79% of the index’s constituents closing in the green on Monday. Consumer discretionary (+2.77%), information technology (+2.51%) and real estate (+2.26%) were among the best performing sectors, whereas consumer staples (+0.02%) and healthcare (+0.32%) were lagging.
S&P 500 Sector Performance 02-02-2021
Source: Bloomberg
S&P 500 Index Technical Analysis:
Technically, the S&P 500 index broke the “Ascending Channel” last week, entering a technical correction. Prices found some support near the 50% Fibonacci extension level at 3,700 and has since rebounded. Yet, the 20-Day Simple Moving Average (SMA) line (3,800) may serve as an immediate resistance. A return above the 20-Day SMA may signal the end of the current technical correction and price may continue its upward trajectory with an aim to attempt 3,890 – the 200% Fibonacci extension.
S&P 500 Index – Daily Chart
ASX 200 Index Technical Analysis:
The ASX 200 index found strong support at 6,570 – the bottom of the range-bound zone - and has since rebounded (chart below). Immediate support and resistance can be found at 6,570 and 6,810 respectively.
ASX 200 Index – Daily Chart
Nikkei 225 Index Technical Analysis:
The Nikkei 225 index broke below a key support level of 28,200 last week, entering into a technical correction. A failed attempt to return above the 20-Day SMA (28,400) may lead to a deeper correction with an eye on its 50-Day SMA for support. The MACD indicator has formed a bearish crossover, hinting at short-term selling pressure.
Nikkei 225 Index – Daily Chart
--- Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter
