DOW JONES, NIKKEI 225, STRAITS TIMES INDEX OUTLOOK:
- Cyclical sectors pulled back while tech gained in a risk-off session, APAC stocks may trade lower
- Worsening virus situation dented sentiment amid worries about a post-Thanksgiving case spike
- Singapore stocks consolidated further as institutional net inflow shrank in early-December
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Tech-led Session, Surging Covid-19 Cases, Asia-Pacific at Open:
Tech outperformed cyclical sectors overnight amid surging coronavirus cases across the US, pulling the Dow Jones and S&P 500 index from their record highs. California reported a 69% surge in Covid-linked ICU cases alongside climbing hospitalizations after the Thanksgiving holiday break. Illinois and New York also recorded a bump in cases.
Technology stocks led the Nasdaq index higher by 0.50%, showing a reversal of flows from value shares amid fear of a post-Thanksgiving case spike. The ascending trend of infections in the US showed no sign of abating (chart below) and may lead to further lockdown measures leading into the Christmas holiday season. Although several promising vaccines are on course to be rolled out, it may take a few months before they become widely available.
Materials (-3.34%) and energy (-2.7%) were among the worst performers on Monday, reversing the recent trend that favoring cyclical stocks. The S&P 500 energy sector have gained over 30% since early November as vaccine hopes brightened prospects for energy demand. This trend appeared to fade as profit-taking activity ramped up alongside a returned appetite for tech.
US Daily New Covid-19 Case
Source: Google
Asia-Pacific markets look set to follow a bearish US lead, with equity futures pointing to a lower start across Japan, mainland China, Australia, Singapore and Indonesia. These markets have already retraced from their recent highs after registering decent gains in November. Seasonally, December is a relatively quieter month for stock trading with less participants and lower volatility. Some further consolidation could be underway as traders prepare themselves for the holiday season.
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On the macro front, Eurozone Q3 GDP estimate and Germany ZEW economic sentiment index are among the top events today. Find out more on the DailyFX economic calendar.
Sector-wise, all 9 Dow Jones sectors ended lower, with 80% of the index’s constituents closing in the red on Monday. Materials (-3.34%) , energy (-2.70%) and financials (-0.79%) were among the worst performers, while information technology (-0.11%) and industrials -0.24%) registered relatively small losses.
Dow Jones Sector Performance 07-12-2020
Source: Bloomberg, DailyFX
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Straits Times Index Outlook:
The Singaporean stock market saw a significant slowdown in institutional money inflow in the first week of December, with only S$ 33.7 million pumping in versus S$ 329.4 million in a week before (chart below). This is largely in line with a pullback in the Straits Times Index lately. A healthy correction looks set to continue as institutional inflow slows.
Source: SGX
Technically, the STI appears to have entered a period of consolidation with an eye on 2,800 for support. The overall trend remains bullish-biased, as suggested by upward-sloped 20-, 50- and 100-Day Simple Moving Average (SMA) lines. The index has likely formed a “Golden Cross”, which points to a medium-term bullish trend.
Straits Times Index – Daily Chart
Nikkei 225 Index Technical Analysis:
Technically, the Nikkei 225 index has likely broken the lower bound of its “Ascending Channel” (chart below) and thus may open the door for a deeper pullback. An immediate support level can be found at 26,350, where the 50% Fibonacci extension and the 20-Day SMA line intercept. Breaking the 20-Day SMA may also signal a short-term trend reversal with an eye on 25,990 for support.
Nikkei 225 Index – Daily Chart
ASX 200 Index Technical Analysis:
Technically, the ascending trend of the ASX 200 index remains intact in the near term, but the upward momentum appears to be slowing alongside a broader pullback in other Asia-Pacific markets. An immediate support level can be found at 6,640 – the 38.2% Fibonacci extension. A narrowing Bollinger Band width reflects weakening momentum, and a deeper pullback is possible if price breaks the 20-Day SMA line.
ASX 200 Index – Daily Chart
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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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