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Nikkei 225, ASX 200, Hang Seng Index brace for volatility after more Wall Street rout

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The Nikkei 225, ASX 200 and Hang Seng Index are bracing for more volatility as another stronger-than-expected US inflation report bolstered hawkish Federal Reserve policy expectations.

Source: Bloomberg

Wednesday’s Wall Street trading session recap

Volatility on Wall Street continued to batter the major benchmark stock indices on Wednesday, placing the Nikkei 225, ASX 200 and Hang Seng at risk next. Looking at the chart below, the majority of S&P 500 sectors closed in the red. The top three worst-performing components were consumer discretionary, information technology and communication services, falling 3.57%, 3.3% and 1.51% respectively.

The key culprit was another hotter-than-expected inflation report out of the United States. Headline CPI crossed the wires at 8.3% y/y in April, which was down from 8.5% in March. Still, this was much stronger than the 8.1% consensus. The core measurement, which strips out volatile food and energy prices, also surprised to the upside. It clocked in at 6.2% y/y versus 6.0% seen, down from 6.5% prior.

This will continue to keep the Federal Reserve on its toes as it attempts to bring inflation down toward the longer-term average target of 2.0%. Moreover, the markets increased their expectations for a fourth 50-basis point hike this year. Meanwhile, the central bank is about to begin unwinding its balance sheet, further reducing liquidity conditions in financial markets.

Thursday’s Asia-Pacific trading session

Thursday’s Asia-Pacific trading session is looking to be fairly light on data. Australia will release consumer inflation expectations. This could keep traders glued on broader fundamental themes and focus on general market sentiment. As such, it could be another disappointing round for indices such as the Nikkei 225, ASX 200 and Hang Seng Index as investors around the world continue to face the reality of tightening credit conditions.

Nikkei 225 technical analysis

The Nikkei 225 confirmed a breakout under the 38.2% Fibonacci extension at 26103, exposing the midpoint at 25377 before the March low at 24505 comes into focus. Guiding the index lower seems to be a combination of a long-term falling trendline from September, and a near-term one from late March. These could reinstate the downside focus in the event of a turn higher.

Nikkei 225 daily chart

Source: TradingView

ASX 200 technical analysis

The ASX 200 has been struggling to hold a push under the 100% Fibonacci extension at 7007. Recently, prices left behind a Long-Legged Doji candlestick. This is a sign of indecision. Upside progress could signal further gains to come. Still, clearing lower exposes the wide 6747 – 6894 support zone before the March 2021 low nears. In the event of a turn higher, keep a close eye on the falling trendline from April.

ASX 200 daily chart

Source: TradingView

Hang Seng technical analysis

The Hang Seng Index is attempting to hold a push under the April low at 19625, with immediate support below as the midpoint of the Fibonacci extension at 18980. Below the latter sits the March low which is closely aligned with the 2016 bottom at 18037. In the event of a turn higher, the falling trendline from February could maintain a dominant downside focus.

Hang Seng Futures daily chart

Source: TradingView

Daniel Dubrovsky | Currency Analyst, DailyFX, San Francisco
12 May 2022
This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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