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Dow Jones Retreats as Yields Fall, Regulatory Risk Weighs on Hang Seng Index

Dow Jones Retreats as Yields Fall, Regulatory Risk Weighs on Hang Seng Index

Margaret Yang, CFA, Strategist

DOW JONES, HANG SENG INDEX, ASX 200 INDEX OUTLOOK:

  • Dow Jones, S&P 500 and Nasdaq 100 indexes closed -0.60%, -0.20% and +0.40% respectively
  • The tech sector outperformed cyclical ones as the Treasury yield curve flattened on growth concerns
  • Hong Kong’s tech stocks are under mounting regulatory pressure. Didi Chuxing plunged 19.5%.

Dow Pullback, Yield Curve, Hang Seng Tech, FOMC Minutes, Asia-Pacific at Open:

The Dow Jones Industrial Average pulled back from record levels on Tuesday as the Delta variant stoked renewed concerns about the recovery of global economy. 10-year Treasury yield plunged 6%, or 8.7bps to a 4-month low of 1.35%, reflecting rising growth concerns. Meanwhile, 2-year rate fell 2.5%, or 0.57bps overnight, resulting in a flattening yield curve.

The technology sector tends to outperform the cyclical ones when yield curve flattens, because falling longer-dated rates may bolster their valuations and appeal. A 4.7% surge in Amazon’s share price sent the Nasdaq 100 index to a fresh record.

The Delta variant was attributed to the recent surge in Covid-19 cases in the UK and Australia, and may threaten a new round of lockdowns and travel restrictions around the world. This may cast a shadow over a fragile and unbalanced recovery of the global economy, especially to countries that have relatively slow vaccination progress. A worsening pandemic situation may benefit the technology sector, which tends to outperform cyclical ones during the depth of the pandemic.

Nasdaq 100 Outperforms Dow Jones

Dow Jones Retreats as Yields Fall, Regulatory Risk Weighs on Hang Seng Index

The US Dollar index rebounded to 92.5 overnight as souring sentiment boosted demand for the safe-haven currency. This exerted downward pressures on precious metals and crude oil prices. Gold prices pulled back to $1,795 after briefly hitting a two-week high of $1,815. Crude oil prices plunged 3.3% to $73.7 as traders mulled uncertainties surrounding OPEC+ output policy after the meetings hit a deadlock.

Looking ahead, the June FOMC meeting minutes dominates the economic docket today alongside MBA mortgage applications. Investors will eye details of the Fed’s view on macroeconomic conditions – both inflation and the labor market - for clues about its tapering timeline.Find out more from DailyFX economic calendar.

Asia-Pacific markets are positioned for a sour start of the day. Futures in Japan, mainland China, Australia, Hong Kong, Singapore and India are in the red, whilst those in South Korea, Taiwan, Malaysia and Thailand are slightly in the green.

Hong Kong’s Hang Seng Index (HSI) fell for a sixth day after Chinese cybersecurity regulators tightened controls over tech firms on safety and privacy ground. The Cyberspace Administration of China (CAC) launched a probe into Didi Chuxing – the country’s largest ride-haling – on Friday and then ordered app stores to remove it on Sunday. Didi was listed in New York exchange just last week, and its share price plunged almost 20% after the news. Beijing’s tightening grip on internet companies may continue to weigh on sentiment among Chinese tech firms listed in both Hong Kong and the US.

Looking back to Tuesday’s close, 8 out of 9 Dow Jones sectors ended lower, with 73.3% of the index’s constituents closing in the red. Materials (-2.49%), energy (-1.96%) and communication services (-1.48%) were among the worst performer, whereas information technology (+0.23%) registered a small gain.

Dow Jones Sector Performance 06-07-2021

Dow Jones Retreats as Yields Fall, Regulatory Risk Weighs on Hang Seng Index

Source: Bloomberg, DailyFX

Dow Jones Index Technical Analysis

The Dow Jones index is challenging an immediate resistance level at 34,920 – the 200% Fibonacci extension. A successful attempt would likely intensify near-term buying pressure and open the door for further upside potential. A failed try however, may form a “Triple Top” chart patten that is bearish in nature. Bearish MACD divergence suggests that prices may be vulnerable to a technical correction as bullish momentum fades.

Dow Jones Index Daily Chart

Dow Jones Retreats as Yields Fall, Regulatory Risk Weighs on Hang Seng Index

Hang Seng Index Technical Analysis:

The Hang Seng Index is hitting the floor of the range-bound zone it traded within over the last few months. Holding above this level may pave the way for a technical rebound, whereas a breakdown below it may open the door for further losses. The MACD indicator is oscillating at around the neutral line, suggesting that the index may be lack of a clear direction in the near term.

Hang Seng Index Daily Chart

Dow Jones Retreats as Yields Fall, Regulatory Risk Weighs on Hang Seng Index

ASX 200 Index Technical Analysis:

The ASX 200 index pulled back from its all-time highs this week and entered a technical correction. Prices have likely formed a “Bull Flag” pattern, which hints at further upside potential after a period of consolidation. Immediate support levels can be found at 7,200 – the 127.2% Fibonacci extension. The overall bullish trend remains intact as suggested by the upward-sloped SMA lines.

ASX 200 Index – Daily Chart

Dow Jones Retreats as Yields Fall, Regulatory Risk Weighs on Hang Seng Index

--- 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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