DOW JONES, HANG SENG, ASX 200 INDEX OUTLOOK:
- Dow Jones, S&P 500 and Nasdaq 100 indexes closed +0.19%, +0.08% and +0.21% respectively
- US core PCE inflation data came in at 3.1% YoY, higher than a baseline forecast of 2.9%
- Asia-Pacific markets look set to trade modestly higher. US markets are shut for the Memorial Day holiday
US Core PCE, AMC Entertainment, China NBS PMI, Asia-Pacific Week-Ahead:
The Dow Jones index closed modestly higher on Friday as the market shrugged off higher inflation data. The core PCE inflation gauge that the Fed uses to determine monetary policy came in at 3.1% YoY, compared to a 2.9% estimate. This also marks the highest reading since 1992, underscoring rising price pressure as economic growth gathers pace.
The market doesn’t seem to be too concerned about this however, as the 10-year Treasury yield declined to 1.579% while the DXY US Dollar index retreated back to 90.06. So long as the Fed is tolerant of a transitory spike in price levels, higher inflation readings can probably be viewed as a positive sign for the economy.
The Russell 2000 index underperformed large-cap indices as a sharp intraday reversal in share of AMC Entertainment dented sentiment in the small cap stocks. The stock rallied over 110% last week amid a renewed wave of speculative activity by Reddit day-traders. It surged as much as 39% on Friday before pulling back sharply and closed 1.5% lower. GameStop – another popular stock targeted by this group of traders – finished 12.6% lower.
Looking ahead, China’s NBS manufacturing PMI reading dominates the economic docket alongside German inflation data on Monday. This week, the RBA interest rate decision, Euro area core inflation and US nonfarm payrolls data will be in focus. Find out more from theDailyFX calendar.
US Core PCE Price Index (YoY)
Source: Bloomberg, DailyFX
Asia-Pacific markets look set to kick off the week in a mixed mood. Futures in Australia, Hong Kong, South Korea, Malaysia and Thailand are modestly higher, whereas those in Japan, mainland China, Taiwan, Singapore and India are in the red. Trading activity is likely to be muted as the US markets are shut on Monday for the Memorial Day, resulting in fewer market participants. Lower liquidity conditions may render the market susceptible to higher volatility if unexpected events hit the newswires.
Investors will eye today’s release of Chinese NBS manufacturing PMI data for clues about the recovery of the world’s second-largest economy. The gauge is expected to remain in expansionary territory in May, but upward momentum appears to be fading due to supply bottlenecks and rising raw material costs recently. Chinese data tends to have a significant impact on the Australian and New Zealand Dollars due to their close trade relationship.
New Covid-19 outbreaks across the Asia-Pacific region may weigh on risk appetite as more countries tightened lockdown measures. A neighborhood in China’s Guangzhou city has been put under lockdown over the weekend after a new coronavirus outbreak was found there. Malaysia will enter a “total lockdown” throughout the country from June 1st to 14th amid rising infections. The country’s daily case numbers exceeded 8,000 on May 28th, reaching a new high. Last week, Japan extended the state of emergency in Tokyo and several key areas, while Australia’s Victoria State imposed new restrictions.
Looking back to Friday’s close, 4 out of 9 Dow Jones sectors ended higher, with 40% of the index’s constituents closing in the green. Information technology (+1.08%) and energy (+0.76%) outperformed, while industrials (-0.48%) and materials (-0.35%) trailed behind.
Dow Jones Sector Performance 21-05-2021
Source: Bloomberg, DailyFX
Dow Jones Index Technical Analysis
The Dow Jones index may be challenging the 200% Fibonacci extension level (34,920) for a second attempt. Prices remain within an “Ascending Channel” formed since early November, the ceiling and the floor of which serve as key support and resistance levels respectively. Bearish MACD divergence suggests that bullish momentum may be fading however.
Dow Jones Index – Daily Chart
Hang Seng Index Technical Analysis:
The Hang Seng Index (HSI) formed a “Double Bottom” chart pattern on the daily chart and may be positioned for further price gains (chart below). The index breached above the trend-determine 100-day SMA line with upward momentum. An immediate resistance level can be found at 29,344 – the 50% Fibonacci retracement. Breaching above this level may open the door for further upside potential with an eye on 29,778 – the 38.2% Fibonacci retracement.
Hang Seng Index – Daily Chart
ASX 200 Index Technical Analysis:
The ASX 200 index reached an all-time high on Friday after breaching above a key resistance level of 7,126 – the 261.8% Fibonacci extension. Prices have since opened the door for further upside potential with an eye on 7,200. The MACD indicator formed a bullish crossover and trended higher, suggesting that upward momentum 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