Dow Jones, Nikkei 225, ASX 200 Outlook: Tapering Fears Damage Sentiment

DOW JONES, NIKKEI 225, ASX 200 OUTLOOK:

• Dow Jones, S&P 500 and Nasdaq 100 indexes closed -1.58%, -1.31% and -0.81% respectively
• St Louis Fed President hinted that the Fed could begin price hikes as quickly as late-2022, sending a powerful hawkish sign to the market
• The VIX volatility index jumped 16% to 20.7 on tapering fears, setting a bitter tone for APAC markets

Tapering, VIX, Gold, Yield Curve Flattening, Asia-Pacific Week-Forward:

Wall Avenue equities closed broadly decrease on Friday as a hawkish-biased remark from St. Louis Fed President James Bullard raised fears about Fed price hikes. All Dow Jones constituents ended decrease, and greater than 90% of the S&P 500 corporations closed within the crimson. Bullard mentioned he sees inflation working at 3% this yr and a couple of.5% in 2022, which “would meet our new framework the place we mentioned we’re going to permit inflation to run above goal for a while, and from there we might deliver inflation right down to 2% over the following horizon”.

He additionally highlighted that inflationary pressures have been “extra intense” than many Fed officers had anticipated. This might pave the best way for the Fed to start out elevating coverage charges as quickly as the tip of 2022, which is even sooner than an estimated timeline of 2023 as projected within the June FOMC assembly. The DXY US Greenback index prolonged a three-day rally to a six-week excessive of 92.32 earlier than retreating barely this morning.

The US Treasury yield curve flattened final week, reflecting a retreat in reflation bets as merchants tried to cost in the potential of a 2022 price hike. The two-year price surged to 0.264% – a stage not seen since April 2020. Wanting into the final rate-hike cycle, a fast fall in 10-2 yr Treasury yield unfold was adopted by the Fed’s sign of tapering QE in 2013 (chart under).

Supply: Bloomberg, DailyFX

APAC markets look set to open sharply decrease following losses on Wall Avenue. Futures in Japan, Australia, Hong Kong, Taiwan, Singapore and Thailand within the crimson, whereas these in mainland China Malaysia and South Korea are barely increased.Tapering fears could cap the upside for main indices, whereas a stronger US Greenback could entice capital to move out from rising markets.

Treasured metals have been badly harm too, with gold costs falling over 7% over the last six buying and selling periods. Bitcoin, which is delicate to liquidity situations and rates of interest, retreated to the 35okay space. The ‘worry gage” VIX volatility index surged 16% to 20.7 – the very best stage in a month.

VIX Volatility Index

Supply: TradingView

Japan’s Nikkei 225 index fell 2.7% at open, resuming its downward trajectory after a failed try to breach the 100-day SMA line. The Financial institution of Japan (BoJ) maintained accommodative financial coverage throughout Friday’s assembly. The central financial institution additionally launched a program to offer funds to monetary establishments to handle local weather change, which the BoJ Governor Haruhiko Kuroda mentioned would have “an especially massive” affect on the economic system. In the meantime, the state of emergency in Tokyo, Osaka and a number of other different prefectures ended on Sunday because the nation ready for the upcoming Olympics.

For the week forward, US Markit manufacturing PMI and sturdy items order knowledge dominate the financial docket alongside the BoE rate of interest determination and US core PCE figures. Weekly preliminary jobless claims knowledge and the College of Michigan shopper sentiment knowledge will even be in focus. Discover out extra from theDailyFX calendar.

Wanting again to Friday’s shut, all 9 Dow Jones sectors ended decrease, with 100% of the index’s constituents closing within the crimson. Power (-3.77%) financials (-2.98%) and supplies (-2.46%) have been among the many worst performers.

Dow Jones Sector Efficiency 18-06-2021

Supply: Bloomberg, DailyFX

Dow Jones Index Technical Evaluation

The Dow Jones index didn’t breach a key resistance stage of 34,920 (the 200% Fibonacci extension) and has since entered a pullback. Costs fell rapidly final week, breaching under the ground of the “Ascending Channel” fashioned since November. This will likely sign a bearish pattern reversal and extra value weak spot could observe on. An instantaneous assist stage could be discovered at 33,060 – the 100-day SMA line. Bearish MACD divergence means that upward momentum could also be fading.

Dow Jones Index – Each day Chart

Nikkei 225 Index Technical Evaluation:

The Nikkei 225 index tumbled on Monday, falling 2.8% at open. The index fell into the “Descending Channel” and thus could resume its bearish trajectory. The 20-and 50-day SMA strains breached under the 100-day line not too long ago, forming a “Dying Cross”. The MACD indicator is forming a bearish crossover too, suggesting that bearish momentum could also be dominating.

Nikkei 225 Index – Each day Chart

ASX 200 Index Technical Evaluation:

The ASX 200 index reversed decrease after hitting an all-time excessive of seven,406 final week. The 20-day SMA line could function a right away assist stage, adopted by 7,194 – the 127.2% Fibonacci extension stage. The general pattern stays bullish-biased, though a technical pullback appears to be underway. The MACD indicator is about to kind a bearish crossover, suggesting that bearish momentum is constructing.

ASX 200 Index – Each day Chart

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Feedback part under or @margaretyjy on Twitter