S&P 500, NIKKEI 225 INDEX, ASX 200 INDEX OUTLOOK:
- Dow Jones, S&P 500 and Nasdaq 100 indexes closed -1.38%, -1.84% and -2.60% respectively
- The Ukraine crisis is posited to escalate further as the US widened sanctions against Russia
- Asia-Pacific equities look set to open mixed. Crude oil and gold prices are edging higher
S&P 500, Hang Seng Tech, Crude Oil, Asia-Pacific at Open:
The S&P 500 index extended a four-day loss on Wednesday as investors mulled escalating Russia-Ukraine tensions after the US widened sanctions against Russia. President Vladimir Putin said that the separatist leaders from two breakaway regions in eastern Ukraine are seeking Russian help to repel Ukrainian forces, adding into concerns that military conflicts in the region may escalate further.
The US widened sanctions against Russia by targeting the Nord Stream 2 pipeline project, which is designed to transmit Russian gas directly to Germany. The EU applied penalties to 23 high-level Russians. In the near term, geopolitical risks remain in focus as the political skies are far from clear and the situation remains highly fluid. This creates a large amount of uncertainty that market tends to dislike, spurring a deeper selloff in equities.
Geopolitical risks propelled a rally in gold and crude oil, the latter is trading at multi-year high. Oil traders are vigilant about a potential escalation in the conflicts that may lead to restrictions on Russia’s oil exports, adding supply constraints in an already tight market. Russia is the world’s second-largest oil exporter after Saudi Arabia, shipping around 5 million barrels of crude oil per day. If the Ukraine crisis deepens further, it may spiral into an energy crisis and push oil and gas prices higher. This may result in even higher inflation around the world and urge central banks to tighten monetary policy at a faster pace, weighing on risk assets, especially the rate-sensitive technology sector.
Brent Crude Oil - Daily
Chart created with TradingView
Asia-Pacific stock markets look set to open mixed on Thursday. Futures in Japan, mainland China, South Korea and Thailand are in the green. Those in Australia, Hong Kong, Taiwan, Singapore, Malaysia, India and Indonesia are in the red.
The Hang Seng Tech Index (HSTECH) rebounded 1.4% on Wednesday after state-backed newspaper Economic Daily said that the market may have over-reacted to authority’s new guidelines released last Friday. The newspaper explained that lowering platform fees is only one of the 43 guidelines regulator has highlighted, and it is not mandatory. This alleviated worries about tightening regulatory grips over the country’s largest food-delivery platform Meituan, which saw its price plunging 15% on Friday. Yet, market sentiment remains fragile among Chinese tech firms amid a prolonged period of regulatory crackdown and heightened geopolitical risks abroad.
Looking ahead, investors will be eyeing US 4Q GDP and initial jobless claims data for clues about the health of the labor market. Find out more from the DailyFX calendar.
Looking back to Wednesday’s close, 10 out of 11 S&P 500 sectors ended lower, with 87.9% of the index’s constituents closing in the red. Consumer discretionary (-3.42%), information technology (-2.56%) and industrials (-1.88%) were among the worst performers, whereas energy (+1.01%) registered a small gain.
S&P 500 Sector Performance 23-02-2021
Source: Bloomberg, DailyFX
S&P 500 Index Technical Analysis
The S&P 500 index may have entered a meaningful correction after breaching below an “Ascending Channel” as highlighted on the chart below. Prices extended lower after the formation of a “Double Top” chart pattern, which is commonly viewed as a bearish trend-reversal indicator. It breached below a key support level of 4,300 and thus exposed the next support level of 4,200. The MACD indicator has formed a bearish crossover and trended lower, underscoring bearish momentum.
S&P 500Index – Daily Chart
Chart created with TradingView
Nikkei 225 Technical Analysis:
The Nikkei 225 index breached below a “Symmetrical Triangle” pattern and thus opened the door for further downside potential. The lower trendline of the “Symmetrical Triangle” has now become immediate resistance, whereas an immediate support level can be found at 25,740 – the 61.8% Fibonacci extension. The MACD indicator is about to form a bearish crossover, suggesting that bearish momentum may be building.
Chart created with TradingView
ASX 200 Index Technical Analysis:
The ASX 200 index has rebounded after a meaningful correction in January. Prices are challenging the 61.8% Fibonacci retracement – a key resistance level. Breaching this level will likely intensify buying pressure and open the door for further upside potential with an eye on 7,435. The MACD indicator is about to form a bearish crossover beneath the neutral midpoint, suggesting that selling pressure may be building.
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
