Market Recap

An initial sell-off in Wall Street was met with subsequent dip-buying towards the latter half of the day, which saw US indices paring most of their losses overnight. The move seems to be more of a continuation from previous attempts in reverting from oversold conditions, as compared to having a clear fundamental catalyst, making it a potential relief rally. Overnight sector performance only saw energy as the clear outlier (+2.06%), following through with higher oil prices boosted by the 2-million production cut from Organization of the Petroleum Exporting Countries (OPEC+).

Treasury yields were higher across the board, with the 10-year yields moving 14 basis-point (bps) higher while the 2-year ticked up by 5 bps. Some renewed strength was seen in the US dollar (+0.77%) as well, largely a reflection of some slight build-up in rate hike bets, triggered by signs of economic resilience in the US services sector. The higher-than-expected reading for the US Institute for Supply Management (ISM) services Purchasing Managers’ Index (PMI) (56.7 versus 56.0) saw continued strength in the labour market, which seems to challenge the labour contraction presented in the manufacturing sector earlier this week. The US Automatic Data Processing (ADP) report also showed a higher-than-expected addition to private payrolls for September but generally, it has been less accurate at predicting the US non-farm payroll. Current risk sentiments seem to be hoping for weaker economic data in a bid to challenge the Federal Reserve System’s (Fed) tightening process, although it is clearly more of a one-sided expectation for now. That will leave any weaker-than-expected US job report on watch tomorrow for further relief.

On the corporate front, Credit Suisse continues to struggle with concerns of its financial health, somewhat triggering a snowball effect as clients reduce exposure to the bank (latest being its stock lending clients) and internal talents depart. Its share price is down by 4.2% after a brief recovery from the day before. Tesla continues to fall 3.5% overnight, as a confluence of deliveries miss for its third quarter and Elon Musk’s plan to buy Twitter Inc (All Sessions) continue to weigh on sentiments.

The US 500 is heading to retest a key confluence of Fibonacci resistance around the 3,800 – 3,834 region, where previous dip-buying efforts back in late-September failed to hold. For now, markets may attempt to tap on some room for a breather before the Federal Open Market Committee (FOMC) minutes and CPI reading next week inject a layer of caution on the risk environment once more. A bullish crossover on Moving Average Convergence/ Divergence (MACD) points to a reversal in momentum to the upside, but the overall downward trend and the lack of a clear catalyst may suggest that it could still be more of a relief rally than a full-on recovery.

Asia Open

Asian stocks look set for a mixed open, with Japan 225 +0.65%, Australia 200 +0.01% and KOSPI +0.82% at the time of writing. The aggressive paring of losses in US indices overnight, along with some positive moves in equity futures this morning, may suggest that market bulls are attempting to hang on despite the lack of reinforcement from economic data for the dovish-pivot narrative. This may put the Asian trading session more towards a flat to slightly-positive frame, as we head into the release of the US job report tomorrow. The OPEC+ production-cut decision may drive traction towards energy companies, while other economically-sensitive sectors could see more limited upside on the increasing costs of input.

For the Hong Kong HS50, catch-up performance after its holiday break has driven a close to 6% jump yesterday. Its futures point to a slightly lower move but nevertheless, a bullish crossover has been presented on MACD for now while an ongoing reversion of the Relative Strength Index (RSI) from oversold conditions seems to be playing out. This may leave the 18,600 level on watch in the near term, where a previous support-turned-resistance stands in the way, along with an upper channel trendline resistance. The overall downward trend for the index could still leave any formation of a lower high in the rally on watch.

On the watchlist: Brent crude prices attempting to reclaim previous resistance on OPEC+ cuts

The conclusion of the recent OPEC+ meeting saw deep production cuts of 2 million barrels per day (bpd) as previously guided, which lifted Oil - Brent Crude prices to retest a key support-turned-resistance level above the US$93 level. Underproduction among OPEC+ members may limit the eventual impact of the cut, with estimates coming in at around 1 million bpd, but nevertheless the move suggests that the Group has its eyes on certain oil price level (potentially US$85-US$90). This may drive expectations of further cuts on the table if oil prices fall back towards that range. That said, while some kind of a price floor may have been put in place, the upside may potentially be limited as well, as prevailing growth risks on demand outlook will continue to be a weighing block. On the technical front, Brent prices have been trading in a descending channel pattern since July this year. Current level marks a retest of its 50-day Moving Average (MA) but further resistance could potentially be found at the US$97.20 level, where the upper channel trendline resistance stands in place.

Wednesday: DJIA -0.14%; S&P 500 -0.20%; Nasdaq -0.25%, DAX -1.21%, FTSE -0.48%