Nikkei 225 and Hang Seng Index in Cautious Mood After a Choppy US Session

NASDAQ 100, NIKKEI 225, HANG SENG INDEX, ASX 200 INDEX OUTLOOK:

• Dow Jones, S&P 500 and Nasdaq 100 closed -0.45%, -0.14%, and +0.14% respectively
• Investors mulled the impact of Fed rate hikes and the spread of Omicron variant on the economy
• Asia-Pacific markets look set to open modestly lower, with Japan markets resuming trading after a break

Nasdaq 100, Hang Seng Index, Southbound, Asia-Pacific at the Open:

Wall Street stocks rebounded during the late trading session and erased some deep intraday losses on Monday. The tech-heavy Nasdaq 100 index fell as much as 2.7% before bouncing back, ending modestly higher. This suggests that market sentiment remains fragile as investors mull the impact of Federal Reserve rate hikes, rising Treasury yields and the rapid spread of Omicron variant of the Covid-19 virus. Yet there seems to be dip buyers waiting for a bargain too, as the recent US jobs data showed good signs of economic recovery. The US 10-year Treasury yield pulled back to 1.76% from 1.80%, alleviating pressure on growth stocks, precious metals and Emerging Market assets.

Looking ahead, the release of US corporate earnings may be the next focus. Big banks such as JPMorgan, Wells Fargo and Citigroup will report results this Friday, followed by Goldman Sachs, Bank of America and Morgan Stanley next week. The estimated earnings growth rate for the S&P 500 is 21.7% in Q4 2021, marking a fourth straight quarter of earnings growth above 20%, according to Factset.

US Earnings Highlights

Source: Bloomberg, DailyFX

Asia-Pacific markets look set to open lower following a tepid lead from Wall Street. Futures in Japan, Australia, Hong Kong, South Korea, Taiwan, Singapore, Malaysia and India are in the red, whereas those in mainland China and Thailand are in the green.

Hong Kong’s Hang Seng Index (HSI) rallied 1.08% on Monday, defying fears about a faster pace of Fed tightening. Hong Kong stocks have largely lagged behind global peers throughout 2021, and their valuations have reached the lowest level since the outbreak of Covid-19. Many investors are eyeing Hong Kong stocks for bargain hunting, including mainland investors. Exchange data showed that HKD 3.15 billion have flowed into the Hong Kong market on Monday via stock connections, marking a fourth consecutive session of net inflow (chart below).

Technology stocks outperformed, fueling a 2.21% rally in the Hang Seng Tech Index (HSTECH). Relatively small cap Kuaishou (+10.11%) and JD health (+11.64%) outperformed large cap name Alibaba (-0.93%) and Tencent (+2.3%). If this rally could last, more buyers may return to the market looking for opportunities to buy the dip.

Southbound Flow vs. Hang Seng Index

Source: Bloomberg, DailyFX

Looking ahead, the Fed Chair Jerome Powell testimony dominates the economic docket alongside Australia retail sales and Japan coincident index. Find out more from the DailyFX economic calendar.

Looking back to Monday’s close, 8 out of 11 S&P 500 sectors ended lower, with 64% of the index’s constituents closing in the red. Utilities (-1.15%), materials (-0.99%) and consumer staples (-0.73%) were among the worst performers, whereas healthcare (+1.04%) and information technology (+0.10%) outperformed.

S&P 500 Sector Performance 10-01-2022

Source: Bloomberg, DailyFX

Nasdaq 100 IndexTechnical Analysis

The Nasdaq 100 index risks breaching below a key support level of 15,550 – the lower bound of the range-bound zone it traded over the last few months. Failing to hold above this level would bring the next support level of 15,310 and then 14,800 into focus. The MACD indicator is trending lower, suggesting that downward momentum may be prevailing.

Nasdaq 100 Index– Daily Chart

Chart created with TradingView

Nikkei 225 Technical Analysis:

The Nikkei 225 index is hovering within a “Symmetrical Triangle” pattern over the past few month, waiting for fresh catalysts for a decisive breakout. The September high of 30,700 serves as a key resistance level, whereas the lower trendline may provide some near-term support. The MACD indicator is about to form a bearish crossover beneath the neutral midpoint, suggesting that near-term momentum remains weak.

Nikkei 225 Index – Daily Chart

Chart created with TradingView

ASX 200 Index Technical Analysis:

The ASX 200 index pulled back to a range-bound zone between 7,200 to 7,500 after a ‘false breakout’ last week. The floor and ceiling of the range may be viewed as immediate support and resistance levels respectively. The overall trend remains bullish-biased, as the MACD indicator pierced through the neutral midpoint and moved higher. A meaningful breach above 7,500 may intensify buying pressure and expose the next resistance level of 7,760.

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