DOW JONES, HANG SENG INDEX, ASX 200 INDEX OUTLOOK:
- Dow Jones, S&P 500 and Nasdaq 100 indexes closed +0.51%, +0.92% and +1.41% respectively
- Powell’s testimony delivered little surprise, alleviating concerns about rate hikes and policy tightening
- The DXY US Dollar index fell to 8-week low; APAC markets are positioned to follow higher
Dow Jones, Powell Testimony, US Earnings, US Dollar, Asia-Pacific at Open:
The Dow Jones Industrial Average snapped a four-day losing streak and closed higher, lifted by cyclically-oriented sectors such as energy, materials and industrials. Federal Reserve Chair Jerome Powell reassured market participants that the central bank will bring down inflation while keeping the economic expansion in shape. Powell also said that the Fed will probably start to shrink its balance sheet this year. Today’s release of US inflation data will also be closely eyed by traders for clues about rising price levels and its ramifications for policymakers.
The DXY US Dollar index fell 0.36% to an eight-week low of 95.60. A weakening US Dollar may alleviate pressure on equities, precious metals and Emerging Market currencies.
US earnings season will kick off this week with big banks such as JPMorgan, Wells Fargo and Citigroup announcing Q4 results. Analysts and companies appear to be less optimistic compared to recent quarters in their outlook. More S&P 500 companies have issued negative EPS guidance and less have issued positive earnings guidance for this quarter. Yet the estimated earnings growth rate for the S&P 500 is 21.7%, according to Factset. This marks the fourth straight quarter of earnings growth above 20%.
As earnings expectations start to normalize and base effects fade, investors may be hesitant to chase up stock market highs and play a defensive game. The technology sector, which issued the most negative earnings guidance and is comparatively more vulnerable to interest rate hikes, may be more susceptible to technical pullbacks.
DXY US Dollar Index - Daily
Chart created with TradingView
Asia-Pacific markets are positioned for a positive start to the day. Futures in Japan, Hong Kong, Australia, South Korea, Taiwan, Singapore, India, Thailand and Indonesia are all in the green. Those in mainland China and Malaysia are in the red.
Hong Kong’s Hang Seng Index looks set to open 1.2% higher, led by technology shares. US-listed ADRs such as Alibaba (+3.0%), Tencent (+4.4%) and JD.COM (+10.3%) soared overnight, potentially fueling a rally in the Hang Seng Tech Index (HSTECH). Hong Kong stocks have lagged behind global peers for most of 2021, and investors may eyeing them for deep bargain hunting.
Looking ahead, China’s inflation rate and new Yuan loans lead the economic docket alongside US inflation readings. US CPI is expected to hit a four-decade high of 7.0% in December, and the core CPI is expected to come in at 5.4%. Higher-than-expected readings would likely spur concerns about Fed tightening and weigh on equities, whereas lower readings would likely have the opposite impact. Find out more from the DailyFX calendar.
Looking back to Tuesday’s close, 7 out of 9 Dow Jones sectors ended higher, with 63.3% of the index’s constituents closing in the green. Energy (+2.29%), materials (+1.34%) and industrials (+1.15%) were among the best performers, whereas consumer discretionary (-0.40%) and consumer staples (-0.39%) trailed behind.
Dow Jones Sector Performance 12-01-2022
Source: Bloomberg, DailyFX
Dow Jones Index Technical Analysis
The Dow Jones Industrial Average has likely formed a bearish “Butterfly” chart pattern and has since entered a technical correction. An immediate support level can be found at 35,760 – the 38.2% Fibonacci retracement, followed by 35,390 – the 50% Fibonacci retracement. The previous high (point D) serves as a key resistance. The MACD indicator has formed a bearish crossover, suggesting that near-term momentum may be weakening.
Dow JonesIndex – Daily Chart
Chart created with TradingView
Hang Seng Index Technical Analysis:
The Hang Seng Index (HSI) trended lower within a “Falling Wedge” pattern, as highlighted in the chart below. Prices tested an immediate support level at 22,800 (200% Fibonacci extension) and rebounded. Holding above this level may pave the way for a test of the psychological level of 24,000. The MACD indicator is trending higher below the neutral midpoint, suggesting that bullish momentum may be building.
Hang Seng Index – Daily Chart
Chart created with TradingView
ASX 200 Index Technical Analysis:
The ASX 200 index pulled back to a range-bound zone between 7,200 to 7,500 after a ‘false breakout’ last week. The floor and ceiling of the range may be viewed as immediate support and resistance levels respectively. The overall trend remains bullish-biased, as the MACD indicator pierced through the neutral midpoint and moved higher. A meaningful breach above 7,500 may intensify buying pressure and expose the next resistance level of 7,760.
ASX 200 Index – Daily Chart
Chart created with TradingView
--- Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter
