US earnings season to further drive sentiments this week: Nasdaq 100, USD/JPY, Gold

Market Recap

The US earnings season has kickstarted with positive earnings surprises from JPMorgan, Citigroup and Wells Fargo last week, which paints a more resilient picture for these larger banks towards recent banking fallouts. Net interest income continues to do the heavy-lifting for their earnings outperformance, while JPMorgan reported a pick-up in customer deposits from depositors’ shunning of smaller banks on instability concerns.

That said, a build-up in loan loss provisions among these large banks provides testament to the downside risks for growth ahead. This follows a wide underperformance for US March retail sales (-1% month-on-month versus -0.4% expected), which adds to the series of data reflecting a softening US economy and higher recession risks. That kept risk sentiments in check to end last week, with major US indices ending the day slightly in the red (DJIA -0.42%; S&P 500 -0.21%; Nasdaq -0.35%).

Nevertheless, as shown in the recent banking results, beaten-down expectations may provide room for positive surprises ahead. Thus far, 6% of S&P 500 companies have reported their earnings, with 93% delivering higher-than-expected earnings. The VIX has struggled in moving higher thus far, while the latest Commodities Futures Trading Commission (CFTC) data continues to reveal extreme bearish positioning among large speculators (highest net short positions since 2011), which provides an opportunity for bear capitulation if earnings deliver.

For the Nasdaq 100 index, the formation of a bullish flag pattern remains in place, as the index continues to defend its key 13,000 level, where a Fibonacci confluence zone stands. The higher highs and higher lows since January this year continue to provide an overall upward bias for now. Earnings from Netflix and Tesla will be in focus this week, which will set the stage for subsequent tech earnings. Further upside for the index may leave its August 2022 high at the 13,700 level on watch.

Asia Open

Asian stocks look set for a mixed open, with Nikkei -0.13%, ASX +0.31% and KOSPI -0.36% at the time of writing (8.30 SGT). This marks some cautious sentiments ahead of further US earnings releases this week, with the US equity futures largely subdued as well.

On the economic data front, Singapore’s March non-oil domestic exports (NODX) has surprised significantly to the upside (+18.4% month-on-month versus +1.7% consensus) this morning. Year-on-year, exports fell 8.3% but is more optimistic than the 20.8% decline expected. Nevertheless, headwinds still persist with exports to China plunging further into the red by 14.1% year-on-year. The data has been supported by higher exports in the US (+13.2% versus 8.7% in February) this time round, which runs the risks of moderation when US economic conditions worsen ahead.

China will announce its one-year medium-term lending facility rate today, which may set the stage for how its series of economic data may turn out over the coming days. A rate cut from the People's Bank of China (PBoC) may reflect expectations that economic recovery is not as optimistic as initially expected to warrant more policy support despite reopening efforts in place.

On another front, the USD/JPY (大口） has formed a series of recent higher highs and higher lows, with rising moving average convergence/divergence (MACD) reflecting building upward momentum, seemingly bucking the trend of a weaker US dollar. A dovish reaffirmation of keeping rates lower for longer by Bank of Japan (BoJ) new Governor Kazuo Ueda last week may provide headwind for the JPY for now, but the 138.00 level will likely be a key resistance to overcome, where the key 200-day moving average (MA) stands. The likely scenario still seems to be a near-term consolidation for another subsequent move lower.

On the watchlist: Bearish divergences point to abating upward momentum for gold prices

Following a 13% rally since March 2023, bearish divergences on both Relative Strength Index (RSI) and MACD point to abating upward momentum for gold prices, which raise the odds of a near-term retracement from previous overbought technical conditions. The latest CFTC data also revealed net positions among money managers nearing overextended levels at its highest level since April 2022, which may call for some near-term unwinding. An ascending channel pattern seems to be in place. Any breakdown of the channel could put the US$1,960 level in sight next, while on the upside, the US$2,068 level may be a strong resistance to overcome, where prices have failed to overcome this level on two previous occasions (August 2020, March 2022).

Friday: DJIA -0.42%; S&P 500 -0.21%; Nasdaq -0.35%, DAX +0.50%, FTSE +0.36%