Market Recap

Major US indices managed to find their way higher overnight, reflecting the bulls retaining control despite an initial mixed market reaction to the US retail sales data. Following the upside surprise in the recent US consumer price index (CPI), the jump in January US retail sales (3% month-on-month versus 1.8% forecast) may add to Federal Reserve’s (Fed) rate hike concerns but the upward revision in market rate expectations has been more measured. While markets were still relatively split on the Fed’s peak rate, previous guidance from policymakers that they want to gauge the ‘cumulative tightening of monetary policy’ kept the bias on an impending rate pause.

Treasury yields continue to ride higher, bringing further upside for the US dollar index as well, but that surprisingly failed to put a dent on the risk environment. The VIX continues to head sharply lower as a sign of easing market fears, potentially driven by the confluence of limited rate hikes and pushback against a severe economic slowdown in the US.

The US Tech 100 index has managed to find support off the 12,200 level and is seemingly on its way to retest the 12,900-13,000 level of resistance once more, which it failed to overcome earlier in the month. The formation of a recent higher low still kept the upward bias intact for now. Any move above the 13,000 level could pave the way to retest its nine-month high at the 13,700 level.

Asia Open

Asian stocks look set for a positive open, with Nikkei +0.66%, ASX +0.47% and KOSPI +1.02% at the time of writing. Economic data this morning revealed a slowdown in Japan’s exports to 3.5% from previous 11.5% but nevertheless, the figure is more promising than the 0.8% expected. Moderation in global demand remains a key weighing block, along with a weaker Chinese demand from the Lunar New Year holiday. Finding the bottom in trade weakness remains on watch, but thus far, lingering signs of optimism have been presented with the third straight month of positive surprise in exports. Elsewhere, seemingly in a turn of the spy balloon event, a tougher tone came from China to warn of retaliation against US entities. Nevertheless, the toughening up could be to gain some leverage in any upcoming diplomatic talks and any retaliatory moves could still seem more measured.

Renewed up move in Treasury yields has put the yield differential story back in place for the USD/JPY, which has been presenting an upward bias on recent higher highs and higher lows, after breaking above a downward channel pattern earlier in the month. The moving average convergence/divergence (MACD) is heading into positive territory for the first time since November 2022, pointing to a potential shift in sentiments to the upside. The 134.20 level currently stands in the way as resistance to overcome, and breaking past this level could pave the way towards the 137.90 level next, where a 38.2% Fibonacci retracement level stands.

On the watchlist: Gold prices saw further unwinding on resilient US dollar

Gold prices remained under pressure overnight as an up move in the US dollar drove further unwinding of net-long positioning, following the upside surprise in the recent US CPI data. Rate expectations have been revised higher, although not as aggressive as before, considering that the Fed previously guided to want to gauge the ‘cumulative effect’ of tightening. Nevertheless, that kept a lid on gold prices’ upside, which broke below the US$1,840 level, where a 50% Fibonacci retracement level stands. The MACD has reverted into negative territory as an indication of a switch in momentum and further downside could place the US$1,800 level on watch next.

Wednesday: DJIA +0.11%; S&P 500 +0.28%; Nasdaq +0.92%, DAX +0.82%, FTSE +0.55%