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Nasdaq 100 Tumbles on Inflation Fears, Nikkei 225 and ASX 200 May Fall

Nasdaq 100 Tumbles on Inflation Fears, Nikkei 225 and ASX 200 May Fall

Margaret Yang, CFA, Strategist

NASDAQ 100, NIKKEI 225, ASX 200 INDEX OUTLOOK:

  • Dow Jones, S&P 500 and Nasdaq 100 closed -0.10%, -1.04%, and -2.63% respectively
  • 5-year breakeven inflation rate surged to 2.73%, spooking markets
  • The Nikkei 225 and ASX 200 indexes opened lower, setting a sour tone for APAC markets

Tech Rout, Inflation, Oil, Asia-Pacific at Open:

Selling in the technology sector pulled Wall Street equity benchmarks lower on Monday, with the Nasdaq 100 index tumbling 2.63%. Without much of news crossing the wires, market attributed this drastic selloff to inflation fears. Indeed, the 5-year breakeven rate – a key gauge of bond traders’ inflation expectations – have surged to 2.73%. This is the highest level seen since 2008.

Several factors are pointing to rising price levels, including rising wages, fiscal stimulus hopes and higher commodity prices. April’s nonfarm payrolls report showed that average hourly earnings surged 0.7% MoM to $30.17 – an all-time high. This is due to labour shortage as employers struggled to hire. A much lower-than-expected job gain in April increased the odds for the Biden administration to push forward another fiscal stimulus plan, which may be another inflation booster. The recent surge in commodity prices - especially crude oil, gasoline, iron ore and copper - added further inflationary pressures.

Therefore, Wednesday’s US headline inflation and core readings will be closely eyed by forex and equity traders. Market has already set high expectations for the (YoY) increase in the price levels, with the headline rate figure to hit 3.6%. If the actual reading comes in higher than expected, market could face another wave of volatility.

Inflation concerns reignited profit taking in the technology sector, which appears to be more vulnerable to rising rates. Tesla, ASML and Facebook were among the worst performers (chart below).

Top 10 Stock by Market Cap in the Nasdaq 100 – Daily Performance

Nasdaq 100 Tumbles on Inflation Fears, Nikkei 225 and ASX 200 May Fall

Source: Bloomberg, DailyFX

Asia-Pacific markets are facing a challenging day ahead. Futures in Japan, mainland China, Australia, Hong Kong, Taiwan and Singapore are in the red. Technology shares in the region could face severe selling pressure following a negative lead on Wall Street, whereas defensive sectors may show resilience.

The Nikkei 225 index traded 1% lower at open as the Japanese government decided to extend the state of emergency by another three weeks to May 31st. This will have a negative economic impact of 600 billion Yen in addition to the initial estimated 400 billion Yen, economists said. Meanwhile, a global shortage of semiconductors also put constrains on its manufacturing sector, especially in the auto industry. On the positive side, Japanese household spending surged 6.2% YoY in March, smashing expectations of 1.5%. This reflected strong domestic demand and may buoy consumer sectors in today’s trade.

Australia’s ASX 200 index retreated slightly on Tuesday after hitting an all-time high. Rising commodity prices led to strong gains across the mining sector, offsetting concerns surrounding political tensions between Australia and China. Iron ore prices hit a fresh record of US$ 215.48, and copper closed at a record of US$ 10,692on Monday.

Nasdaq 100 IndexTechnical Analysis

The Nasdaq 100 index has likely formed a bearish Gartley 222 pattern and traded lower since (chart below). The “D” point coincides with the 200% Fibonacci extension level (14,013), therefore serving as a strong resistance level. Prices are testing the trend-determine 50-day SMA line, breaking which would likely intensify near-term selling pressure and expose the 100-day SMA line. The MACD indicator formed a bearish crossover and trended lower, underscoring downward momentum.

Nasdaq 100 IndexDaily Chart

Nasdaq 100 Tumbles on Inflation Fears, Nikkei 225 and ASX 200 May Fall

Nikkei 225 Index Technical Analysis:

The Nikkei 225 index entered a consolidative phase after it failed to breach the 30,214 resistance (the 127.2% Fibonacci extension) on a third attempt. Immediate support levels can be found at 28,357 (100% Fibonacci extension). The MACD indicator is trending lower, suggesting that further consolidation is likely.

Nikkei 225 IndexDaily Chart

Nasdaq 100 Tumbles on Inflation Fears, Nikkei 225 and ASX 200 May Fall

Chart by TradingView

ASX 200 Index Technical Analysis:

The ASX 200 index breached above a “Rising Wedge” yesterday before pulling back slightly. Prices also pierced through the 216.8% Fibonacci extension level, underscoring strong upward momentum. A daily close above this level may confirm the breakout and open the door for further upside potential with an eye on 7,200 – a psychological resistance.

ASX 200 Index – Daily Chart

Nasdaq 100 Tumbles on Inflation Fears, Nikkei 225 and ASX 200 May Fall

--- 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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