Market Recap

Coming after two days of stellar gains, US equity markets took a breather overnight (DJIA +0.31%; S&P 500 -0.07%; Nasdaq -0.27%) as growth stocks underperformed slightly ahead of big tech earnings releases. Nevertheless, equity bulls seem to have a reason to cheer lately, with the S&P 500 moving back above a key downward trendline resistance and buyers will attempt to defend the 3980-4,000 range in the coming days to support further upward bias. It seems that the absence of hawkish Fed comments from the current blackout period has removed a key overhang for risk sentiments for now, providing some renewed traction back into growth, but that will be put to the test next week on whether the Fed will react to recent downside surprise in inflation and growth. Previous comments from Fed officials suggest that some pushback could still be possible, but that has done little in swaying market expectations of having peak rate below 5%.

The economic backdrop remains challenging, with US flash PMI figures improving slightly from December (46.6 versus previous 45) but continuing to trend in contractionary territory for the sixth consecutive month. Market movement in the aftermath of the data release were short-lived, which could leave corporate earnings in the driving seat. After-market release from Microsoft initially saw share price moving 4% higher on a profit beat and resilient cloud revenue, but more downbeat guidance for its businesses in the current quarter dampened the optimism. Further contraction in the PC market is expected to weigh on its ‘More Personal Computing’ business ahead, while cloud revenue forecast for the current quarter was slightly lower than expected.

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.09%, ASX -0.42% and KOSPI +1.44% at the time of writing. Economic data this morning saw another upside surprise in Australia’s December inflation (8.4% versus 7.6% expected), which anchored expectations that another 25 basis-point (bp) from the Reserve Bank of Australia (RBA) in February is warranted. There are also mounting bets that another 25 bp in March may be needed as well. The AUD/USD jumped in reaction to the data release. Having seemingly found support at a key 76.4% Fibonacci retracement level last week, that may leave the 0.714 level in sight.

Singapore’s inflation rate will also be due for release later today, with the core aspect still providing little conviction that a peak is in place. Past two months’ readings have hovered around 5.1%, just barely a tick lower from its high at 5.3%, potentially pointing to some pricing persistence. Expectations are for a 5% print for December. A further upside surprise could be on watch to provide further downside for USD/SGD, which has been consolidating at its three-year low at the 1.310 level.

On the watchlist: USD/JPY back at key confluence of resistance

After the wild swing delivered in the aftermath of the Bank of Japan (BoJ) meeting on 18 January, the USD/JPY has once again moved to retest a key confluence of resistance at the 130.80 level. Some recovery in the US 10-year yields over the past week may be the key source of strength for the upward moves here. That said, an upper channel trendline resistance, its 20-day moving average (MA) and a horizontal support-turned-resistance are technical factors to put sellers in place at the 130.80 level, with any failure to overcome the level keeping the downward bias intact and potentially prompting the next move towards the 126.84 level. On the contrary, any successful attempt to move past the level may leave the 134.40 level on watch.

Tuesday: DJIA +0.31%; S&P 500 -0.07%; Nasdaq -0.27%, DAX -0.07%, FTSE -0.35%