DOW JONES, HANG SENG, ASX 200 INDEX OUTLOOK:
- Dow Jones, S&P 500 and Nasdaq 100 indexes closed -0.75%, -0.86% and -0.60% respectively
- US government bonds yields continued to fall, suggesting that reflation optimism may be faltering
- Asia-Pacific markets are positioned to follow a negative lead, with most futures trading in the red
Yields, Delta Variant, Jobless Claims, Asia-Pacific at Open:
Wall Street equities pulled back from their record highs as the emerging Delta variant of the Covid-19 virus casted a shadow over the outlook of global recovery. All Dow Jones sectors ended lower, with financial, materials and consumer discretionary sectors leading the decline. 10-year Treasury yields fell to 1.294% – the lowest level seen since February. This suggests that market’s view on reflation and long-term inflation may be weakening. Rising demand for safety may have also attributed to the rise in Treasury note prices, sending yields lower.
Japan’s government announced on Thursday that it plans a new virus state of emergency stretching through the Olympics, which will kick off on July 23rd. This marks the latest government measures to contain the spread of the highly contagious strain.
Meanwhile, weekly initial jobless claims data fell slightly short of expectations. Some 373k unemployment claims were filed last week, compared to a 350k estimate. The previous week’s figure was revised up to 371k from 364k. A slower-than-expected recovery in the labor market may serve to soothe tapering fears as Fed officials monitor both inflation and employment figures to set monetary policy.
US 10-Year Treasury Yield
Asia-Pacific markets look set to end the week on the back foot. Futures in Japan, mainland China, Australia, South Korea, Taiwan, Malaysia, India and Thailand are in the red, whereas those in Hong Kong and Singapore are slightly higher.
Hong Kong’s Hang Seng Index (HSI) tumbled 2.89% on Thursday, putting it on the verge of wiping out the entire year-to-date gains. Sentiment deteriorated after Chinese regulators announced new antitrust rules on Thursday following ordering app stores to remove Didi Chuxing earlier this week. An abrupt tightening in regulatory curbs on the country’s large tech firms hurt investor confidence, leading to a sharp fall in the stocks such as Tencent (-3.7%), Alibaba (-4.1%), Meituan (-6.4%) and JD.COM (-3.6%). Near-term outlook may remain bearish-biased as selling pressure doesn’t appear to have depleted.
Looking back to Thursday’s close, all 9 Dow Jones sectors ended lower, with 86.7% of the index’s constituents closing in the red. Financials (-2.19%), materials (-1.35%) and consumer discretionary (-0.87%) were among the worst performers.
Dow Jones Sector Performance 08-07-2021
Source: Bloomberg, DailyFX
Dow Jones Index Technical Analysis
The Dow Jones index has likely formed a “Triple Top” chart pattern after prices failed to breach a key resistance level at 34,920 for another try. A deeper pullback from here risks breaking the “Ascending Channel” that formed since November, and may open the door for further losses toward 33,320 – the 161.8% Fibonacci extension.
Dow Jones Index – Daily Chart
Hang Seng Index Technical Analysis:
The Hang Seng Index broke the ascending trendline as highlighted on the chart below and thus opened the door for further losses. An immediate support level can be found at 27,150 – the 50% Fibonacci retracement. The overall trend appears to be bearish-biased as the SMA lines are about to form a “Death Cross”. The MACD indicator pierced below the neutral line, suggesting that near-term momentum is tilted to the downside.
Hang Seng Index – Daily Chart
ASX 200 Index Technical Analysis:
The ASX 200 index pulled back from its all-time highs and entered a technical correction. Prices have likely formed a “Bull Flag” pattern, which hints at further upside potential after a period of consolidation. Immediate support levels can be found at 7,200 – the 127.2% Fibonacci extension. The overall bullish trend remains intact as suggested by the upward-sloped SMA lines.
ASX 200 Index – Daily Chart
— Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter