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Dow Jones Retreats as Inflation Heats Up, Hang Seng and ASX 200 in Sour Mood

Dow Jones Retreats as Inflation Heats Up, Hang Seng and ASX 200 in Sour Mood

Margaret Yang, CFA, Strategist

DOW JONES, HANG SENG, ASX 200 INDEX OUTLOOK:

  • Dow Jones, S&P 500 and Nasdaq 100 closed -1.36%, -0.87% and -0.06% respectively
  • Rising inflation concerns spook markets, triggering broad profit taking
  • Stocks in Australia and Hong Kong are positioned for losses following a sour Wall Street lead

US Inflation, Commodity Prices, Profit Taking, Asia-Pacific at Open:

Wall Street equities pulled back for a second day as inflation concerns continued to dominate traders’ mind. With copper and iron ore prices surging to record highs and Chinese PPI figure hitting 6.8% YoY, equity markets are under increasing pressure. Higher commodity prices could hinder growth and encourage central banks to withdraw monetary stimulus at a faster pace. Besides surging raw material prices, rising wages and fiscal stimulus hopes are also pointing to higher inflation expectations.

It seems that the cyclical and value sectors are no longer immune to inflation angst, as the Dow Jones and S&P 500 indexes underperformed the Nasdaq 100 on Tuesday. Energy, financials and consumer discretionary were among the worst performers overnight, whereas raw materials fared relatively better.

Therefore, Wednesday’s US headline inflation and core readings will be closely eyed by forex and equity traders. The 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, the market could face another wave of selling. A lower-than-expected figure however, may alleviate pressure on risk assets.

Iron Ore 62% FE, CFR China Futures - COMEX

Dow Jones Retreats as Inflation Heats Up, Hang Seng and ASX 200 in Sour Mood

Chart from TradingView

Asia-Pacific markets are set for a weak open on Wednesday. Futures across Japan, Australia, South Korea, Singapore, Malaysia and Thailand are pointing to a lower start. The viral resurgence in India and the spread of mutant strains remains a key concern for Asia-Pacific investors. This may post a major growth and reopening risk to the South and Southeast Asia region.

The Hang Seng Index (HSI) looks set to extend lower after falling more than 2% on Tuesday. Selling was intensified after the US tech rout and news that Chinese regulators are tightening grip on technology giants. Financial companies including HSBC, AIA, ICBC and Ping An Insurance seem to be the most susceptible to a selloff following a sour US lead.

Australia’s ASX 200 index retreated from its record high on Tuesday, ending 1.06% lower amid broad profit taking. A small pullback in copper and iron ore prices overnight may weigh on mining stocks. The ASX 200 index opened modestly lower, dragged by real estate (-1.06%), utilities (-0.68%) and financials (-0.36%) sectors. Information technology (+1.10%) and healthcare (+0.31%) outperformed.

On the macro side, German and US inflation readings headline the economic docket alongside UK GDP data and EIA crude inventory report. Find out more from theDailyFX calendar.

Looking back to Tuesday’s close, all 9 Dow Jones sectors ended lower, with 90% of the index’s constituents closing in the red. Energy (-2.62%), financials (-2.43%) and consumer discretionary (-1.82%) were among the worst performers, while materials (-0.23%) and information technology (-0.37%) registered small losses.

Dow Jones Sector Performance 11-05-2021

Dow Jones Retreats as Inflation Heats Up, Hang Seng and ASX 200 in Sour Mood

Source: Bloomberg, DailyFX

Dow Jones Index Technical Analysis

The Dow Jones index hit a key resistance level at 34,920 (the 200% Fibonacci extension) and has retreated since. An immediate support level can be found at the 20-day SMA line (34,120), breaking which may open the door for further losses with an eye on 33,320 – the 161.8% Fibonacci extension. Prices remain in an “Ascending Channel” as highlighted in the chart below, suggesting that the overall trend remains bullish-biased. A technical pullback seems to be underway however. The MACD indicator formed a bearish crossover and trended lower, suggesting that downward momentum is building.

Dow Jones Index Daily Chart

Dow Jones Retreats as Inflation Heats Up, Hang Seng and ASX 200 in Sour Mood

Hang Seng Index Technical Analysis:

The Hang Seng Index (HSI) breached below the “Ascending Channel” as highlighted on the chart below, suggesting that the index may have resumed its downward trajectory. The 20- and 50-day SMA lines are about to cross below the 100-day line, forming a “Death Cross”. This suggests that the medium-term trend has likely turned bearish and further losses may follow on. The MACD indicator trended below the neutral midpoint, suggesting that downward momentum is prevailing.

Hang Seng IndexDaily Chart

Dow Jones Retreats as Inflation Heats Up, Hang Seng and ASX 200 in Sour Mood

ASX 200 Index Technical Analysis:

The ASX 200 index fell into the “Rising Wedge” yesterday after briefly breaching above it. The ceiling of the “Rising Wedge” coincides with the 216.8% Fibonacci extension level (7,126), pointing to strong selling pressure around this level. An immediate support level can be found at the 20-day SMA line (7,060). The MACD indicator is trending lower, suggesting that further consolidation is likely.

ASX 200 Index – Daily Chart

Dow Jones Retreats as Inflation Heats Up, Hang Seng and ASX 200 in Sour Mood

--- 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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