S&P 500, ASX, 200, HANG SENG, ASIA-PACIFIC MARKET OUTLOOK:
- US equity indices closed at all-time highs, but the rally may take a pause on virus concerns
- ASX 200, Hang Seng and S&P 500 futures are mixed in view of viral resurgence and lockdowns
- Stimulus money, speculation and return of traders propelled cryptocurrencies, Bitcoin topped $33k
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Pandemic, PMIs, Bitcoin, Asia-Pacific Stocks Weekly Outlook:
Asia-Pacific markets may kick off the week with a mixed tone after all three major US indices finished the year at their record highs thanks to the Covid-19 vaccine rollout, the US stimulus package, as well as seemingly broad consensus that central banks will largely stay accommodative as the pandemic worsens.
Australia’s ASX 200 index is trading 0.7% higher after Sydney imposed new mandatory mask rules with a $200 fine in place from Monday to contain the spread of coronavirus. Fortescue Metals (+2.6%), Commonwealth Bank (+1.46%) and Wesfarmers (+1.31%) are among the top performers in the benchmark this morning.
Hong Kong’s Hang Seng Index may open flat after registering strong gains in the last week of 2020 alongside an astonishing rally in the Shanghai Composite. Both benchmarks have reached their highest levels since March 2020, led by the technology and financial sectors. Some large mainland brokerage firms have given strong buy calls on Chinese equities into 2021 and foresee continuous weakness in the US Dollar underpinning the Chinese Yuan and domestic assets.
Bitcoin prices topped US$ 33,000 on Monday, rising more than 90% in three weeks. The relentless rally in cryptocurrencies reflects strong investor appetite for non-fiat assets in view of unprecedented monetary easing, a potential pick-up in inflation as well as ample liquidity environment. However, a rally at this pace and magnitude may not be sustainable and a technical pullback is possible when profit-taking activity outweighs buying enthusiasm. The market cap for Bitcoin is standing at around US$ 610 billion, compared to roughly US$ 10 trillion that for gold.
Bitcoin
Chart by IG
The US registered a record 291,384 dailyCovid-19 cases on January 2nd (chart below). Tokyo may declare a state of emergency as a resurgence of infections strained the healthcare system, dragging the Nikkei 225 index lower on Monday. China reported a rising number of imported coronavirus cases lately and has further tightened border controls amid wave of return-home travelers as Lunar New Year holidays draw near.
Source: Google
Nonetheless, investors and traders appear to have largely looked past current viral situations and continue to price in a post-Covid recovery with the gradual rollout of vaccines, ample liquidity provided by central banks, and fiscal support. Stock market performance may continue to diverge from Main Street, extending last year’s exuberant rally for the time being.
Top 10 S&P 500 Index Components Daily Performance – 31–12-2020
Source: Bloomberg, DailyFX
Looking ahead, traders are facing a busy week in terms of macroeconomic data. A string of manufacturing PMI readings for December, including China’s Caixin, will be released today. Markets anticipate a slower pace of expansion in global manufacturing sentiment after registering a strong recovery in the second half of 2020. Thursday’s release of FOMC meeting minutes and Friday’s nonfarm payroll report are among the top events this week. Find out more on DailyFX calendar:
Source: Bloomberg, DailyFX
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S&P 500 Index Technical Analysis:
Technically, the S&P 500 index is edging higher within an “Ascending Channel” as highlighted in the chart below. The uptrend is well-supported by its 20-Day Simple Moving Average (SMA) line, although some minor pullbacks were observed. Immediate support and resistance levels can be found at 3,705 (50% Fibonacci extension) and 3,804 (61.8% Fibonacci extension) respectively.
S&P 500 Index – Daily Chart
Hang Seng Index Technical Analysis:
The Hang Seng Index (HSI) has likely broken an “Descending Channel” (chart below) last week with strong upward momentum. The index is challenging a key resistance level at 27,270 – the 161.8% Fibonacci extension. Breaking this level may open the door for further upside potential with an eye on 28,050 – the 200% Fibonacci extension.
Hang Seng Index – Daily Chart
Recommended by Margaret Yang, CFA
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— Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter
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