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Dow Jones Retreats amid Growth Concerns, Hang Seng May Pull Back

Dow Jones Retreats amid Growth Concerns, 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 -0.28%, -0.18% and +0.02% respectively
  • Cyclical sectors pulled back amid rising viral concerns and softer economic data. Real yields fell to all-time lows.
  • Hong Kong’s Hang Seng Index may retreat after rebounding 1.06% on Monday

Dow, Manufacturing PMIs, Real Yields, Crude Oil, Asia-Pacific at Open:

The Dow Jones Industrial Average pulled back slightly on Monday as investors mulled rising Delta variant cases around the world and a slower pace of expansion in China’s manufacturing sector. The NBS manufacturing PMI fell to 50.4 in July from 50.9 in June, marking the slowest pace of growth in 17 months. Meanwhile, US ISM manufacturing PMI eased to 59.5 from 60.6, missing market expectations.

Weaker manufacturing data and worsening pandemic situations reignited growth concerns, sending prices of 10-year Treasury notes to a 5-month high. Real yields (nominal yield – inflation expectations) on 10-year Treasuries fell to a record low of -1.22%, reflecting both a slower pace of growth and rising inflation. Against this backdrop, risk assets may be under near-term pressure.

Crude oil prices, which are sensitive to the energy demand outlook, plunged 2.84% on Monday and extended lower on Tuesday morning. In China, millions of people were confined to their homes as the highly-contagious Delta variant was found in more than 20 cities amid the largest coronavirus outbreak in months. Efforts to stem the spread of the virus may hint at a slower economic activity and softer energy demand in the months to come.

US 10-Year Treasury Yield

Dow Jones Retreats amid Growth Concerns, Hang Seng May Pull Back

Source: Bloomberg, DailyFX

Looking ahead, the RBA interest rate decision dominates the economic docket today alongside US factory orders report. Find out more from DailyFX economic calendar.

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

Hong Kong’s Hang Seng Index (HSI) rallied 1.02% on Monday as investors cheered strong Q2 earnings from HSBC. The Shanghai Composite surged 1.97% on Monday as the recent viral resurgence in mainland China may allow the PBOC room to ease monetary policy. The daily Southbound net outflows have shanked substantially in recent days, reflecting that more buyers have probably returned to Hong Kong market for bargain hunting. Lingering regulatory risks however, may still be on top of investors’ mind.

Looking back to Tuesday’s close, 7 out of 9 Dow Jones sectors ended lower, with 76.7% of the index’s constituents closing in the red. Materials (-1.51%), information technology (-0.65%) and industrials (-0.52%) were among the worst performer, whereas financials (+0.17%) and healthcare (+0.11%) registered small gains.

Dow Jones Sector Performance 02-08-2021

Dow Jones Retreats amid Growth Concerns, 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. Bearish MACD divergence suggests that upward momentum may be weakening.

Dow Jones Index Daily Chart

Dow Jones Retreats amid Growth Concerns, Hang Seng May Pull Back

Hang Seng Index Technical Analysis:

The Hang Seng Index broke a “Descending Triangle” pattern, entering a deep pullback. An immediate support level can be found at 24,850 – the 78.6% Fibonacci retracement. The overall trend remains bearish-biased as suggested by the downward-sloped SMA lines. The MACD indicator is trending lower below the neutral midpoint, suggesting that bearish momentum may be dominating.

Hang Seng Index – Daily Chart

Dow Jones Retreats amid Growth Concerns, Hang Seng May Pull Back

ASX 200 Index Technical Analysis:

The ASX 200 index is challenging a key resistance level at 7,500 – the 200% Fibonacci extension. The overall trend remains bullish-biased, as suggested by the consecutive higher highs and higher lows formed over the past few months. The MACD indicator formed a bullish crossover and trended higher, suggesting that upward momentum is gaining traction.

ASX 200 Index – Daily Chart

Dow Jones Retreats amid Growth Concerns, 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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