S&P 500 falls as crude oil soars, APAC markets may follow lower

S&P 500, Hang Seng Index, crude oil, inflation, Asia-Pacific at the open

US markets had a bloodbath session on Monday as heightened geopolitical tensions pushed crude oil prices to their highest level in nearly a decade. Brent once hit $138 before paring some gains, sending shockwaves across financial markets. The Biden administration is considering banning energy products from Russia as part of the sanctions for its invasion of Ukraine.

Meanwhile, Russia threatened to cut natural gas supplies to Europe via the Nord Stream 1 pipeline. These may add supply constraints in an already tight market, pushing energy prices and inflation higher. Investors are increasingly concerned about the risk of stagflation – a combination of slow economic growth and high inflation – as soaring commodity prices may dampen consumer spending and squeeze corporates’ profit margin.

The Ukraine crisis remains on the centerstage as Russian and Ukrainian officials are preparing to meet for a third round of talks, although hopes for any meaningful progress remains low. Conditions that the Kremlin demands for a ceasefire agreement appears to be highly contentious. Those include Ukraine ceasing military action, changing its constitution to neutrality, recognizing Donetsk and Luhansk as independent territories and acknowledging Crimea as Russian territory.

Market participants are assessing the economic impact brought about by the Ukraine war and follow-through economic sanctions. Prices of crude oil, natural gas, metals and grains have surged over recent weeks, adding inflationary pressures around the globe. The closure of railways and ports in Ukraine further complicates supply chain issues in Eastern Europe.

Brent Crude Oil - daily

Asia-Pacific markets look set to open lower following a sour lead on Wall Street. Futures in Japan, mainland China, South Korea, Taiwan, Singapore, India, Thailand and Indonesia are in the red, whereas those in Australia, Hong Kong and Malaysia are in the green.

Hong Kong’s Hang Seng Index (HSI) tumbled 3.87% and the Hang Seng Tech Index (HSTECH) plunged 4.43% after China set its GDP growth rate at 5.5% for this year - the slowest level since 1991. Investors are also deeply concerned about the Ukraine war and its ramifications for global supply chain and raw materials. Those may adversely impact the country’s manufacturing and industrial sectors. Hong Kong reported 25,150 new Covid-19 cases and 280 deaths on Monday, further weighing on market sentiment as the authority attempted to contain a rapid spread of the virus with more stringent measures.

Despite heavy selling pressure, exchange data showed that mainland investors are ramping up to purchase more. Some HK$ 5.45 billionhave flown into Hong Kong from mainland China via the stock connections on Monday (chart below). This suggests that they may be taking the recent plunge in stock prices as an opportunity to accumulate more. Stock connections account for nearly a quarter of the entire trading volume in the Hong Kong bourse.

Looking ahead, China’s National People’s Congress (NPC) and Eurozone GDP growth rate dominate the economic docket alongside Canadian and US balance of trade.

Looking back to Monday’s close, 9 out of 11 S&P 500 sectors ended lower, with 86.5% of the index’s constituents closing in the red. Consumer discretionary (-4.8%), communication services (-3.74%) and information technology (-3.70%) were among the worst performers, whereas energy (+1.57%) and utilities (+1.31%) outperformed.

S&P 500 sector performance as of Monday March 2022

S&P 500 index technical analysis

The S&P 500 index may have entered a meaningful correction after breaching below an 'Ascending Channel' as highlighted on the chart below. Prices extended lower after the formation of a 'Double Top' chart pattern, which is commonly viewed as a bearish trend-reversal indicator. An immediate support level can be found at around 4,200, according to Fibonacci extension. Breaching this level may open the door for further downside potential with an eye on 4,100. The MACD indicator is trending lower beneath the neutral midpoint, suggesting that near-term selling pressure may be dominating.

S&P 500 index – daily chart

Hang Seng Index technical analysis

The Hang Seng Index (HSI) breached below multiple support levels and extended lower, underscoring strong selling momentum. An immediate support level can be found at 20,830 – the 200% Fibonacci extension. Holding above this level may pave the way for a technical rebound. The MACD indicator dived deeply in to the negative territory, suggesting that prices may be severely oversold.

Hang Seng Index – daily chart

Hang Seng Index technical analysis

The Hang Seng Index (HSI) breached below multiple support levels and extended lower, underscoring strong selling momentum. An immediate support level can be found at 20,830 – the 200% Fibonacci extension. Holding above this level may pave the way for a technical rebound. The MACD indicator dived deeply in to the negative territory, suggesting that prices may be severely oversold.

Hang Seng Index – daily chart

ASX 200 index technical analysis

The ASX 200 index formed a 'Double Top' chart pattern and has since entered a technical correction. An immediate support level can be found at 6,960 – the 23.6% Fibonacci retracement. Breaching below this level may intensify near-term selling pressure and expose the next support level of 6,758. The MACD indicator is trending lower beneath the neutral midpoint, suggesting that momentum remains weak.

ASX 200 index – daily chart

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