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Dow Jones Wobbles as the FOMC Signals March Rate Hike, Hang Seng Index May Follow

Dow Jones Wobbles as the FOMC Signals March Rate Hike, Hang Seng Index May Follow

Margaret Yang, CFA, Strategist

Dow Jones, Hang Seng Index, ASX 200 INDEX OUTLOOK:

  • Dow Jones, S&P 500 and Nasdaq 100 closed -0.38%, -0.15%, and +0.17% respectively
  • Fed Chair Powell said the central bank is ready for March rate hike and will not rule out raising rates at every following FOMC meeting
  • Tesla earnings beat, although supply chain constrains may continue to limit its output

Dow Jones, FOMC, Tesla Earnings, Hang Seng Index, Asia-Pacific at the Open:

Wall Street stocks erased gains and ended modestly lower after Fed Chair Jerome Powell made a hawkish-biased statement during Wednesday’s FOMC meeting. He said that “the committee is of a mind to raise the Fed funds rate at March meeting” and will likely end asset purchases in that month. This will pave the way for the central bank to withdraw its massive balance sheet sometime later this year. Powell also mentioned that he won’t rule out raising rates at every following FOMC meeting, sending the DXY US Dollar index higher and stocks lower.

The Fed appears to be more firm about rate hikes and balance sheet normalization as inflation becomes more persistent than expected and the job market continues to improve. This puts Friday’s release of US core PCE price index – a key inflation gauge that the Fed looks at to set policy - in the spotlight. Core PCE is expected to hit a multi-decade high of 4.8% in December, underscoring rising wage pressures and urgency for the Fed to take actions to rein in inflation.

On the earnings front, Tesla has beaten forecasts on both the top and bottom lines. Its share price oscillated between gains and losses during after-hour trade as the company highlighted supply chain issues that could persist throughout 2022. Its revenue surged 65% YoY to $17.72 billion, and gross margin improved to 27.4% from 26.6% in the previous quarter.

US Core PCE Price Index - Forecast

Dow Jones Wobbles as the FOMC Signals March Rate Hike, Hang Seng Index May Follow

Hong Kong stocks look set to trade mildly lower following a sour lead on Wall Street. The FOMC meeting painted a clear roadmap for tightening, allowing investors to digest a March rate hike and reshuffle their portfolios in response to changes in the yield curve. Chinese tech ADRs listed in the US stock exchanges fell overnight, suggesting that they are particularly vulnerable to rate hikes. Alibaba (-4.84%), NIO (-4.75%) and JD.COM (-1.44%) led the declines.

The stock connections registered HK$ 4.65billion of net Southbound inflows on Wednesday, marking the 16th consecutive day of net inflow. This suggests that mainland investors are still looking for bargain hunting opportunities after months of selling.

Hang Seng Index vs. Southbound Daily Net Flow

Dow Jones Wobbles as the FOMC Signals March Rate Hike, Hang Seng Index May Follow

Source: Bloomberg, DailyFX

Looking ahead, German GfK consumer confidence index dominates the economic docket alongside US Durable Goods and US Q4 GDP figures. Find out more from theDailyFX economic calendar.

Asia-Pacific markets look set to open mixed on Thursday. Futures in Japan, Hong Kong, South Korea, Singapore, India and Indonesia are in the red, whereas those in mainland China, Australia, Taiwan, Malaysia and Thailand are in the green.

Looking back to Wednesday’s close, 9 out of 11 S&P 500 sectors ended lower, with 70.1% of the index’s constituents closing in the red. Real estate (-1.66%), materials (-1.02%) and industrials (-0.82%) were among the worst performers, whereas information technology (+0.72%) and financials (+0.27%) registered small gains.

S&P 500 Sector Performance 26-01-2022

Dow Jones Wobbles as the FOMC Signals March Rate Hike, Hang Seng Index May Follow

Source: Bloomberg, DailyFX

S&P 500 Index Technical Analysis

The S&P 500 index has entered a technical correction after breaching below an “Ascending Channel” as highlighted on the chart below. Prices have likely found some support at around 4,350 this week, breaching below which may expose the next support level at 4,200 – the 161.8% Fibonacci extension. The MACD indicator is trending lower, underscoring bearish momentum. The RSI indicator dived into the oversold territory, suggesting that a short-term rebound is likely.

S&P 500 Index – Daily Chart

Dow Jones Wobbles as the FOMC Signals March Rate Hike, Hang Seng Index May Follow

Chart created with TradingView

Hang Seng Index Technical Analysis:

The Hang Seng Index (HSI) breached above a “Falling Wedge” pattern from the upside, as highlighted in the chart below. This may signal a bullish trend reversal and open the door for further gains. An immediate support level can be found at 24,040 – the 161.8% Fibonacci extension. The MACD indicator is about to form a bearish crossover, suggesting that bullish momentum may be fading.

Hang Seng Index – Daily Chart

Dow Jones Wobbles as the FOMC Signals March Rate Hike, Hang Seng Index May Follow

Chart created with TradingView

ASX 200 Index Technical Analysis:

The ASX 200 index breached below the floor of a range-bound zone between 7,200 to 7,500, entering into a correction. The overall trend has now become bearish -biased after the formation of several bearish candlesticks. An immediate support level can be found at 6,920 – the previous low seen in May 2020. The RSI indicator dived into the oversold territory, suggesting that a technical rebound may be underway.

ASX 200 Index – Daily Chart

Dow Jones Wobbles as the FOMC Signals March Rate Hike, Hang Seng Index May Follow

Chart created with TradingView

--- 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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