S&P 500, NIKKEI 225, ASX 200 INDEX OUTLOOK:
Fed, Tech, Reflation, BoE, Asia-Pacific at Open:
The reflation theme appears to be back on the centerstage this week, with the technology underperforming the cyclical sector on Wall Street. Reopening optimism in the United States and Europe sent commodity prices to their highest level since 2011, according to an index compiled by Bloomberg. Energy was the best-performing S&P 500 sector on Wednesday, followed by materials and financials. The Dow Jones index hit a record high after gaining 0.29%, whereas the Nasdaq 100 index fell for four days in a row.
Further divergence could be seen between growth and value stocks as the US aims to have 70% of the adults vaccinated before July 4th. This will allow further removal of lockdown measures and business normalization, potentially denting demand for digital goods and services. The upcoming summer driving season may boost demand for fuel, entertainment and tourism services.
Several Fed officials gave dovish comments about the inflation outlook, suggesting that the central bank may not start a debate about tapering its monetary easing soon. Fed Vice Chair Richard Clarida said in a TV interview that “there is going to be some upward (price) movement as we reopen, but that it won’t persist over a long period of time”. The DXY US Dollar index stabilized at around 91.26 as traders awaited the BoE interest rate decision, US initial weekly jobless claims data as well as speeches from several Fed members later today.
S&P-GSCI Commodity Index Futures
Chart by TradingView
Asia-Pacific markets are positioned to open mixed. Futures in Japan, Australia, Hong Kong, South Korea and Taiwan are slightly higher. Those in mainland China, Singapore, Malaysia, India and Thailand are in the red however. Higher trading volume is expected as Chinese, Japanese and South Korean investors return to the market after a holiday break.
Japan’s Nikkei 225 index has entered a range-bound condition since mid-February and this looks set to continue. The recent rise in raw material and energy prices could lead to higher production costs for Japanese manufacturers, dampening the prospects of profitability. Japan is the world’s fourth largest oil importer, and therefore rising crude oil prices may serve as a negative catalyst for its stock market. Meanwhile, the Tokyo and Osaka area are still in a state of emergency, further weighing on sentiment.
Looking ahead, the BoE interest rate decision headlines the economic docket alongside US weekly jobless claims. The Bank of England is widely expected to keep its policy interest rate unchanged, but some analysts expect the central bank to give forward guidance on tapering its quantitative easing measures as the economic recovery gathers pace. This could serve as a major catalyst for the British Pound. Find out more from theDailyFX calendar.
Looking back to Monday’s close, 5 out of 11 S&P 500 sectors ended higher, with 55% of the index’s constituents closing in the green. Energy (+3.33%), materials (+1.32%) and financials (+0.94%) were among the best performers, whereas utilities (-1.71%) and real estate (-1.52%) trailed behind.
S&P 500 Sector Performance 05-05-2021
Source: Bloomberg, DailyFX
S&P 500 Index Technical Analysis
The S&P 500 index extended higher after rebounding from the 161.8% Fibonacci extension level (4,125). An immediate resistance level can be found at 4,268 – the 200% Fibonacci extension. The overall trend remains bullish-biased as suggested by the upward-sloped moving averages. The MACD indicator formed a bearish crossover and trended lower, suggesting that upward momentum may be fading.
S&P 500 Index – Daily Chart
Nikkei 225 Index Technical Analysis:
The Nikkei 225 index entered a consolidative phase after it failed to breach the 30,214 resistance (the 127.2% Fibonacci extension) for a third attempt. An immediate support levels can be found at 28,357 (100% Fibonacci extension). The MACD indicator is trending lower, suggesting that further consolidation is likely.
Nikkei 225 Index – Daily Chart
Chart by TradingView
ASX 200 Index Technical Analysis:
The ASX 200 index breached above a key resistance level at 7,071 (the 100% Fibonacci extension) and thus opened the door for further upside potential with an eye on 7,261 (the 127.2% Fibonacci extension). The MACD indicator is about to form a bullish crossover, suggesting that buying pressure is building.
ASX 200 Index – Daily Chart
— Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter