Market Recap

Major US indices found their way higher overnight after its recent sell-off (DJIA +1.60%; S&P 500 +1.49%; Nasdaq +1.54%), tapping on strong corporate earnings and better-than-expected consumer confidence data to drive an attempt for a year-end rally. Both Nike (+12.2%) and FedEx (+3.4%) results exceeded estimates, while a brighter outlook for Carnival Corp (+4.7%) on lower losses and higher sales provided a boost for the travel sector. Thus far, the VIX has failed to see any sustained pick-up over the past week, with a sharp 6.6% move lower overnight to retest the key 20 level. Breaching below this level may be supportive of further strength into year-end, with the level generally looked upon as an indication of a more stable risk environment.

On the economic data front, the significant outperformance in US consumer confidence (108.3 versus 101 forecast) and lower-than-expected existing home sales also triggered a move higher in equities. Some resilience in consumer outlook and falling inflation expectations to its 15-month low are looked upon to give rise to the Santa rally, as year-end window-dressing looms. Next economic data in sight will be the final reading for US quarter three (Q3) gross domestic product (GDP) and November core personal consumption expenditures (PCE) price index to end the week.

For now, a low-volume environment and limited catalysts may aid to provide a temporary breather for the risk environment, but January may pose a key hurdle for risk sentiments with the upcoming earnings season. After breaking below its rising channel pattern in early-December, the Russell 2000 index has moved to retest its previous support turned-resistance at the 1,770 level. For now, the near-term downward bias seems to remain with the lower highs and lower lows over the past month. Any upside may leave the 1,840 level on watch next, which marked a 23.6% Fibonacci resistance.

Asia Open

Asian stocks look set for a positive open, with Nikkei +0.55%, ASX +0.55% and KOSPI +0.56% at the time of writing, looking on track to mirror the positive performance in Wall Street for some relief. US-listed Chinese equities have delivered a strong showing overnight as well, with the Nasdaq Golden Dragon China Index closing 3.7% higher. For the Hang Seng Index, it continued to hover below its 200-day moving average (MA), with the MA line generally looked upon as an indication of the longer-term trend. A bearish crossover on moving average convergence/divergence (MACD) suggests moderating upward momentum for now, with any follow-through weakness leaving the 18,550 Fibonacci confluence zone as a key near-term support. The day ahead will leave Indonesia’s interest rate decision in focus, along with foreign direct investment figures out of China.

On the watchlist: EUR/JPY attempting to bounce off Fibonacci confluence after recent sell-off

After the Bank of Japan’s (BoJ) surprise adjustment to its yield curve control policy, the EUR/JPY is attempting to stabilise near its three-month low after its recent sell-off. A Fibonacci confluence support zone at the 139.24 level thus far has found some dip-buyers, in coincidence with a lower channel trendline support. Japan’s November inflation rate release will be in focus tomorrow. With current core inflation expecting to inch higher to 3.7% from previous 3.6%, no signs of a peak in pricing pressure may seemingly place greater pressure for further shift in BoJ policies in the months ahead. Any formation of a lower high will be in focus, with any downward break of the 139.24 Fibonacci confluence potentially paving the way to the 137.25 next.

Wednesday: DJIA +1.60%; S&P 500 +1.49%; Nasdaq +1.54%, DAX +1.54%, FTSE +1.72%