Asian Open: Wall Street posts late-stage gains after turbulent start

Monday US cash market close:

• The Dow Jones Industrial rose 99.13 points (0.29%) to close at 34,364.50
• The S&P 500 index rose 12.19 points (0.28%) to close at 4,410.13
• The Nasdaq 100 index rose 71.182 points (0.49%) to close at 14,509.58

Asian futures:

• Australia's ASX 200 futures are up 0 points (0.23%), the cash market is currently estimated to open at 7,139.50
• Japan's Nikkei 225 futures are down -300 points (-1.09%), the cash market is currently estimated to open at 27,288.37
• Hong Kong's Hang Seng futures are down -480 points (-1.95%), the cash market is currently estimated to open at 24,176.46
• China's A50 Index futures are down -75 points (-0.49%), the cash market is currently estimated to open at 15,333.24

UK and Europe:

• UK's FTSE 100 index fell -196.98 points (-2.63%) to close at 7,297.15
• Europe's Euro STOXX 50 index fell -175.2 points (-4.14%) to close at 4,054.36
• Germany's DAX index fell -592.75 points (-3.8%) to close at 15,011.13
• France's CAC 40 index fell -280.8 points (-3.97%) to close at 6,787.79

Late recovery on Wall Street

The combination of geopolitical tensions with Russia and Ukraine alongside a very hawkish Fed continued to spook equity sentiment overnight. European equity markets embraced the risk-off mood seen in Asia with DAX, CAC and STOXX all falling over -3.8% and the FTSE down -2.6%. This mood was extended into the Wall Street open with the Nasdaq -5% and the S&P500 down -4.5%, yet recoveries saw these heavy losses  to diminish then turn into minor gains of around 0.3 – 0.5%.

Given the major benchmarks had all probed key support levels then the rebounds look more in line with a bear-market rally than one of the final low. But if tensions over Ukraine are to magically subside then perhaps we can take the latter scenario a little more seriously. The Dow Jones and S&P 500 closed the day with a bullish hammer back above the 50-day eMA and the VIX retreated back to 30.08 after printing an intraday high of 38.80.

Omicron weighs on US PMI’s

On the economic data front, flash PMI’s were missed. Germany’s manufacturing and services PMI’s beat expectations with the latter expanding (over 50) after a 1-month hiatus. Yet US manufacturing and services PMI’s expanded at a slower pace and below expectations, with services falling to 50.9 from 57.6. Yet the impact of economic data on prices appears less potent this week as fear remains the main driver, whether it be fuelled by the Federal Reserve or Russia.

The dollar retained its safe-haven bid

The US dollar was the strongest major currency and up against all of its peers during risk-off trade. The US dollar index (DXY) broke to a 2-week high, in line with our bullish bias. USD/JPY snapped a 4-day losing streak and held above the 113.50 bullish pinbar low. USD/CAD hit a 2-week high and cleared the 1.2620/30 resistance zone.

AUD/USD fell around -1.34% and reached our target around 0.7100 near the base of the broken trendline. We’re happy to step aside of now, given the fact it has since recouped around half of yesterday’s losses. EUR/USD saw a false break of 1.1300 – a level we wanted to see breakdown to confirm the resumption of its downtrend. Like the Aussie we’ll step aside for now.

EUR/GBP hit target after pulling back to the weekly pivot point and forming a bullish hammer on the hourly chart. Given the subsequent pullback we’re happy to step aside and see if a higher low is now formed and can reassess fresh longs ahead of the European open.

 

 

AU inflation and business confidence up next

Australia releases Q4 inflation data at 11:30 AEDT. Inflationary fireworks are not to be expected but, if strong enough, could force the RBA to scale back stimulus. Business conditions for December are also released at the same time although it’s possible we’ll see a knock in confidence, assuming it captures the impact of the latest surge of covid ahead of Christmas.

Oil shakeout continues

Prices continue to correct in a volatile manner on WTI and brent. A wide-legged Doji formed on WTI’s daily chart yet closed above 84.0 to show demand at lower levels despite higher levels of volatility. Its trend structure remains bullish so we anticipate a break to new highs, but we are clearly still in a shakeout period so will wait for further evidence of swing low.

Elsewhere in commodities, gold formed a bullish engulfing day which reaffirms out view that it is headed for 1855 where a strong confluence of resistance levels meet. Silver sold off for a second day but is trying to build a base above the 23.72 resistance level.

ASX 200 to track Wall Street higher?

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Futures point to a higher open for the ASX 200 which should see it back above the 7145 low. But as support was found around 7100 yesterday and Wall Street made a decent recovery then it’s also possible we could see a bounce on the ASX 200 (should AU inflation data allow…). But we’d want to see prices break above 7185 before getting too excited of a decent bounce, with 7200 and 7250 (200-day eMA and 78.6% Fibonacci) making viable upside target. A break of yesterday’s low assumes further downside.

 

ASX 200: 7139.5 (-0.51%), 24 January 2022

• Real Estate (1.45%) was the strongest sector and Information Technology (-1.58%) was the weakest
• 3 out of the 11 sectors closed higher
• 8 out of the 11 sectors closed lower
• 5 out of the 11 sectors outperformed the index
• 135 (67.50%) stocks advanced, 58 (29.00%) stocks declined

Outperformers:

• +9.28% - Uniti Group Ltd (UWL.AX)
• +3.54% - Goodman Group (GMG.AX)
• +3.14% - Mercury NZ Ltd (MCY.AX)

Underperformers:

• -3.5% - Mineral Resources Ltd (MIN.AX)
• -0.74% - CSL Ltd (CSL.AX)
• -0.9% - Xero Ltd (XRO.AX)

Up Next (Times in AEDT)

 

 

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