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Dow Jones Retreats after US Inflation Data, Hang Seng May Pull Back

Dow Jones Retreats after US Inflation Data, Hang Seng May Pull Back

Margaret Yang, CFA, Strategist

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

  • Dow Jones, S&P 500 and Nasdaq 100 indexes closed -0.31%, -0.35% and -0.02% respectively
  • The tech sector outperformed cyclical ones as strong inflation readings reignite tapering fears
  • Hong Kong’s Hang Seng Index may retreat after surging 1.63% on Tuesday

Dow Pullback, US Core CPI, Earnings Season, Tencent, Asia-Pacific at Open:

The Dow Jones Industrial Average pulled back from record levels on Tuesday as US core CPI reading surpassed market expectations. June’s figure came in at 4.5% YoY, compared to a 4.0% forecast. This also marks the highest core inflation reading since 1992, underscoring mounting price pressures that may prompt Fed officials to consider tightening sooner.

As a result, both 2- and 10-year Treasury yields climbed overnight, exerting downward pressure on equities as the cost of borrowing rises. The yield curve steepened due to a tepid 30-year bond auction. Higher yields may also weigh on the precious metals as the opportunity cost of holding them climbs.

Banks kicked off the earnings season with an upbeat tone. Both JP Morgan and Goldman Sachs have beaten analysts’ forecasts with strong performance in their equity and investment banking divisions respectively. Click HERE to read more from a report written by my colleague Daniela Sabin Hathorn.

Q2 US Earnings Table

Dow Jones Retreats after US Inflation Data, Hang Seng May Pull Back

Source: Bloomberg, DailyFX

Looking ahead, the RBNZ interest rate decision and UK core inflation data dominate the economic docket today alongside the BoC’s monetary policy report. Find out more from DailyFX economic calendar.

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

Hong Kong’s Hang Seng Index (HSI) rallied 1.62% on Tuesday, extending a 3-day rebound as investors shrugged off regulatory concerns and welcomed the PBoC’s recent RRR cut. Chinese regulators have approved Tencent’s acquisition of Sogou – one of China’s top-ranked search engine. This marks a key step for Tencent to expand its business in the search market and potentially benefit from higher revenue in ads. The move was also perceived as a sign of relief for the tech industry amid intensified scrutiny on the cybersecurity and antitrust ground. Tencent’s share price jumped 3.9%.

Looking back to Tuesday’s close, 7 out of 9 Dow Jones sectors ended lower, with 60% of the index’s constituents closing in the red. Industrial (-1.68%), financials (-1.03%) and materials (-0.82%) were among the worst performer, whereas information technology (+0.87%) registered a decent gain.

Dow Jones Sector Performance 13-07-2021

Dow Jones Retreats after US Inflation Data, Hang Seng May Pull Back

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. The MACD indicator has formed a bullish crossover and trended higher, suggesting that bullish momentum is building.

Dow Jones Index Daily Chart

Dow Jones Retreats after US Inflation Data, Hang Seng May Pull Back

Hang Seng Index Technical Analysis:

The Hang Seng Index broke the floor of the range-bound zone last week as shown on the chart below. The index has rebounded this week and may be attempting to return to the zone, and the previous trendline support has become an immediate resistance. The MACD indicator has dived below the neutral line, suggesting that the index may be under near-term selling pressure.

Hang Seng Index Daily Chart

Dow Jones Retreats after US Inflation Data, Hang Seng May Pull Back

ASX 200 Index Technical Analysis:

The ASX 200 index is trading in a tight range between 7,230-7,370 waiting for fresh catalysts for a breakout. The overall trend remains bullish-biased, as suggested by the consecutive higher highs and higher lows formed in the past few months. A major resistance level can be found at around 7,500. The MACD indicator is trended lower, suggesting prices may continue to range bound in the near term.

ASX 200 Index – Daily Chart

Dow Jones Retreats after US Inflation Data, Hang Seng May Pull Back

--- 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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