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Dow Jones Rebound May Lift Sentiment for Nikkei 225 and ASX 200

Dow Jones Rebound May Lift Sentiment for Nikkei 225 and ASX 200

Margaret Yang, CFA, Strategist

DOW JONES, NIKKEI 225, ASX 200 INDEX OUTLOOK:

  • Dow Jones, S&P 500 and Nasdaq 100 indexes closed +0.95%, +0.58% and +0.64% respectively
  • The approval of a bipartisan infrastructure bill boosted reflation optimism, sending cyclical-oriented sectors higher
  • Asia-Pacific markets are positioned to follow a positive lead, with futures trading in the green

Fiscal Stimulus, USD, Jobless Claims, Asia-Pacific Week-Ahead:

The Dow Jones Industrial Average extended this week’s rally after President Joe Biden announced a $579 billion bipartisan infrastructure deal that may aid the recovery in the US economy. Although the bill has been scaled down from an initial target of $1.2 trillion, it still marks a great progress in pushing through the Biden Administration’s broader proposals on the bipartisan common ground. The US government is planning for an additional $4 trillion for “human infrastructure” later on. Cyclical-linked industrials, financials and energy sectors outperformed.

Meanwhile, durable goods orders and weekly initial jobless claims data both fell slightly short of expectations, alleviating concerns about Fed tapering stimulus. Some 411k unemployment claims were filed last week, compared to a 380k estimate. Durable goods orders for May rose 2.3% MoM, compared to a baseline forecast of 2.8%. US GDP grew 6.4% during the first quarter, and is expected to register a higher pace of growth rate in Q2. A slower-than-expected recovery in the labor market soothed tapering fears as the Fed officials are monitoring both inflation and employment figures to set monetary policy.

Weekly US Initial Jobless Claims

Dow Jones Rebound May Lift Sentiment for Nikkei 225 and ASX 200

Source: Bloomberg, DailyFX

Looking ahead, US core PCE price index dominates the economic docket alongside the University of Michigan consumer sentiment data on Friday. Core PCE price index is expected to hit 3.4% YoY in May, the highest level since 1992. A large positive deviation from the baseline forecast may reignite tapering fears add strength to the US Dollar, whereas a negative one may result in the opposite. Find out more from DailyFX economic calendar.

US Core PCE Price Index – Forecast

Dow Jones Rebound May Lift Sentiment for Nikkei 225 and ASX 200

Source: Bloomberg, DailyFX

Asia-Pacific markets look set to end the week on the front foot. Futures in Japan, mainland China, Australia, Hong Kong, South Korea, Taiwan and India are in the green, whereas those in Malaysia and Thailand are in the red.

Japan’s Nikkei 225 index opened 0.8% higher, led by materials (+1.19%), information technology (+1.00%) and industrial (+0.89%) sectors. Japan has removed the state-of-emergency measures in the Tokyo and Osaka area this week. Eased Covid-related restrictions could pave the way for the index to aim higher levels, while a resilient Japanese currency may cap stocks’ upside potential.

Looking back to Thursday’s close, 8 out of 9 Dow Jones sectors ended higher, with 93.3% of the index’s constituents closing in the green. industrials (+2.07%) financials (+1.62%) and communication services (+1.25%) outperformed, whereas materials (-0.06%) trailed behind.

Dow Jones Sector Performance 24-06-2021

Dow Jones Rebound May Lift Sentiment for Nikkei 225 and ASX 200

Source: Bloomberg, DailyFX

Dow Jones Index Technical Analysis

The Dow Jones index is attempting to return to the “Ascending Channel” after briefly breaching below it early this week. An immediate support level can be found at 33,320 – the 161.8% Fibonacci extension, whereas a key resistance can be found at 34,920 – the 200% Fibonacci extension. The MACD indicator is about to form a bullish crossover, pointing to fading bearish momentum.

Dow Jones Index Daily Chart

Dow Jones Rebound May Lift Sentiment for Nikkei 225 and ASX 200

Nikkei 225 Index Technical Analysis:

The Nikkei 225 index is attempting to breach the 100-day SMA line, which is an immediate resistance level. The index has also likely broken the ceiling of a “Descending Channel” and thus opened the door for further upside potential. The next key resistance level can be found at 30,200- the 127.2% Fibonacci extension and where the “Triple Top” resistance lies.

Nikkei 225 Index Daily Chart

Dow Jones Rebound May Lift Sentiment for Nikkei 225 and ASX 200

ASX 200 Index Technical Analysis:

The ASX 200 index has likely entered a consolidative period after failing to breach a key resistance level of 7,340. The 20-day SMA line may serve as an immediate support. The overall trend remains bullish-biased as prices formed consecutive higher highs and higher lows. The MACD indicator formed a bearish crossover however, suggesting that upward momentum may be fading.

ASX 200 Index – Daily Chart

Dow Jones Rebound May Lift Sentiment for Nikkei 225 and ASX 200

--- 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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