Market Recap

The two-day rally in US equities came to a stall overnight, as recent risk sentiments riding on earnings resilience seem to be distracted by the advance in US Treasury yields, which reflects the backdrop of the higher-for-longer stance from the Fed. The US 10-year yield broke into another new high since 2008, anchoring its position above the 4% mark. Similarly, the 2-year yields also moved above its previous peak at 4.56%. The US dollar is also challenging its recent retracement, paring back on some of its losses at the start of the week. Higher-than-expected September inflation readings out of UK and Canada posed a reminder that global tightening is far from over, while an earnings beat from Procter & Gamble came with a broad-based price hikes, with potentially further cost-passthrough to consumers ahead. Adding to the inflation worries are the increasing growth risks as more firms are growing more pessimistic about the outlook from the recent Fed beige book.

After-market action was led by Tesla’s earnings releases, with its top-line underperformance and guidance to miss its vehicle delivery targets this year driving a drift lower in equity futures, particularly the growth-sensitive Nasdaq. Tesla’s share price was lower by more than 5% after-market. For the DJIA, it is still attempting to hold up above support, with the formation of a new higher high this week suggesting that it is still holding on to its upward bias. That will leave any formation of a higher low on watch in the event of a near-term retracement.

Developments in the UK remain one to watch, with GBP/USD failing to surpass its previous peak in early October, suggesting that market confidence remains wary while US dollar strength seems to be back on the radar. Mass resignations from the members of Cabinet are the next looming risk, which could dampen recent recovery efforts in the pound. An ascending triangle pattern seems to be at play, with any break below the trendline support potentially driving further downside to the 1.090 level next.

Asia Open

Asian stocks look set for a downbeat open, with Nikkei-0.92%, ASX -0.92% and KOSPI -0.69% at the time of writing. Markets in the region have failed to see much of a pick-up yesterday with the Chinese equities’ underperformance, which reflects some unwinding of previous bullish bets after China’s National Party Congress failed to drive a positive catalyst, along with rising Covid-19 cases running the risk of aggressive restriction measures in Beijing. Economic plans from Hong Kong were also deemed to be lacklustre by investors, with the Hang Seng Index lower by 2.4% yesterday. The downbeat momentum could be set to continue into today’s session, with the Nasdaq Golden Dragon China Index down by more than 7% overnight, with the weakness exacerbated by the more downbeat mood in Wall Street.

Previous dip-buying efforts in the China A50 index have proved to be short-lived, with the index heading to retest its March 2022 bottom once more. That level marks a key level of support, where previous reaffirmation of policy support from authorities has driven a relief rally and any breakdown below that level could leave the 11,500 level in sight. China’s loan prime rate will be in focus later today, but a no-change is largely the consensus. Any cut to the 5-year rate will be a positive surprise for the property sector but a knee-jerk upward move in reaction to any cuts seems more likely, as it will take more to provide greater conviction for markets. The Hang Seng Properties Index remains in a downward trend for now, falling close to 30% over the past year.

On the watchlist: Gold prices heading to retest its two-year low

Another new high for US Treasury yields since 2008 means more weakness for gold prices, as the backdrop for the higher-for-longer stance in Fed’s interest rate outlook remains a key overhang for the non-yielding yellow metal. Gold prices tend to be sensitive to bond yields movement, with prices seemingly heading to retest its recent September bottom at the US$1,620 level. Market participants may want to see a clearer end to Fed’s rate hikes before restoring some confidence in gold prices, but the upside risks to inflation being presented thus far suggest that monetary tightening is far from over, which kept gold prices firmly locked in a descending channel pattern for now. Any break below its two-year low could potentially open the door to the US$1,500 level over the longer term, where the lower channel trendline support stands.

Wednesday: DJIA -0.33%; S&P 500 -0.67%; Nasdaq -0.85%, DAX -0.19%, FTSE -0.17%