Market Recap

A quiet US economic calendar overnight saw major US indices heading lower for the second straight session, as sentiments continue to struggle with the recent blowout jobs report. Sector performance revealed a defensive lean, with underperformance in rate-sensitive tech, Tesla (+2.5%) being the sole outlier. Interest rate expectations thus far have remained well-anchored from last Friday, following the hawkish recalibration for peak rate to be at the 5%-5.25% range. That continues to drive a broad-based increase in US Treasury yields overnight, leading to an in-tandem rise in the US dollar index for the third straight session as well. With the US dollar hovering at the upper resistance of its channel pattern at the 103.20 level, any subsequent break towards the 105.00 level could further leave equities on edge. All eyes will be on Federal Reserve (Fed) Chair Jerome Powell’s comments ahead, with the recent strength in the labour market seemingly opening the door for more hawkishness. That said, sticking to his script at the recent Federal Open Market Committee (FOMC) meeting with not too many surprises could see risk sentiments recover, in line with the upward bias presented from the broader trend.

The 12,900-13,000 level will serve as near term resistance for the Nasdaq 100 index to overcome, where a Fibonacci confluence zone resides. Recent retest of the 12,900 level was met with some profit-taking, but the broader trend remains upward bias, with the more measured follow-through from recent sell-off and the index trading above its 200-day moving average (MA). Any subsequent move above the 13,000 level could pave the way towards the 13,700 level next.

Asia Open

Asian stocks look set for a slight positive open, with Nikkei +0.20%, ASX +0.09% and KOSPI +0.28% at the time of writing. Economic data this morning came in mixed for Japan, which saw a promising 4.8% year-on-year increase in average cash earnings for December, but that was not fed into household spending which contracted more than expected (-1.3% versus -0.2% forecast). The Nikkei 225 index largely reacted with muted moves, potentially with some lingering optimism from yesterday, where hopes for lower-for-longer rates surfaced from speculations of Masayoshi Amamiya’s nomination for the next Bank of Japan (BoJ) governor. Chinese equities continue to see some profit-taking, with the Nasdaq Golden Dragon China Index down 1.8% overnight. Concerns of worsening US-China ties on the balloon shoot-down and previous overbought technical conditions could account for the sell-off. Nevertheless, the constant paring of losses in the Nasdaq Golden Dragon China Index overnight may suggest some attempts to stabilise ahead.

The key risk event ahead will be the Reserve Bank of Australia (RBA) rate decision. The wide consensus is for a 25 basis-point (bp) hike, effectively bringing the cash rate to 3.35%. Recent pull-ahead in Australia’s inflation has challenged hopes of a rate pause, with expectations still very much split on whether peak rate will eventually be at the 3.6% or 3.85% level. Much focus will be on how the RBA will address the recent inflation surprise to guide rate expectations. For the AUD/USD, it has traded below an upward trendline this week, struggling to push back above the 0.690 level. The trendline will serve as near term resistance to overcome for the pair. On the other hand, further downside moves could leave the 0.673 level on watch, where a Fibonacci confluence zone stands.

On the watchlist: Gold prices attempt to stabilise after recent sell-off but Fedspeak looms

Following the recent blockbuster US jobs report, more aggressive rate bets have led gold prices to unwind all of its past month’s gains. While there have been some attempts to stabilise into the new week, an upward trendline resistance serves as a key hurdle to overcome for now. Focus will shift to the upcoming Fedspeak, particularly Fed Chair Jerome Powell’s comments up ahead. With the Fed taking on a data-dependent stance to guide its monetary policies, the risks of a hawkish reaction to the recent economic data remains on the table. Buyers may attempt to overcome the trendline resistance once more, failing which may leave the US$1,800 on watch as potential support.

Monday: DJIA -0.10%; S&P 500 -0.61%; Nasdaq -1.00%, DAX -0.84%, FTSE -0.82%