Market alert: Dow Jones sinks after sterling hit record low, KOSPI and Hang Seng Index at risk ahead

Monday’s Wall Street trading session recap

Market volatility plagued Wall Street to start off the new trading week, continuing last week’s behavior. Dow Jones futures closed at the lowest since November 2020, falling 1.1 percent. Meanwhile, Nasdaq 100 and S&P 500 futures fell 0.53% and 1.05%, respectively. Global monetary tightening remained the key theme driving stock markets lower.

Treasury yields rallied across the board, with the 2-year yield climbing to 4.35%. The rate has rallied for 13 consecutive sessions, which is the longest winning streak since at least 1988. It continues to reflect rising hawkish Federal Reserve monetary policy expectations. This is not too surprising because last week, the markets still underpriced what the Federal Reserve signaled for interest rates in the coming years.

The move on Wall Street also followed volatility in UK-based financial assets. Overnight, the British pound briefly touched a record low as anticipated stimulatory fiscal policy converged with restrictive monetary policy. The Bank of England opened the door to raising rates more quickly in response to the moves in Sterling, further increasing anticipated global monetary tightening.

Taking a look at the sectors within the S&P 500, real estate (-2.63%), energy (-2.57%) and utilities (-2.43%) were the worst-performing segments – see chart below. Real estate has been especially hit hard as the 30-year mortgage rate soared to 6.29%, touching the highest since 2008.

S&P 500 sector breakdown 9/26/2022

Dow Jones technical analysis

Dow Jones futures fell through the February 2021 low, taking out the critical 29552 – 29869 support zone. That has opened the door to extending the dominant downtrend. Immediate support appears to be the 123.6% Fibonacci extension at 28746. In the event of a turn higher, the 20-day Simple Moving Average (SMA) could hold as resistance.

Dow Jones daily chart

Tuesday’s Asia-Pacific trading session

Following the volatility on Wall Street, Asia-Pacific stock markets could be facing a pessimistic session on Tuesday. Notable economic event is lacking, placing the focus for traders on broader sentiment. This may leave South Korea’s KOSPI Index and Hong Kong’s Hang Seng Index vulnerable.

Unconfirmed reports crossed the wires yesterday that Chinese banks were ordered to purchase stocks to help alleviate selling pressure. If such is the case, it remains to be seen how effective this could be. The outward-facing economy remains vulnerable to rising concerns about a global growth slowdown.

KOSPI technical analysis

The KOSPI index fell through the critical 2276 – 2306 support zone, closing at its lowest since July 2020. At 2217, this price was also seen back in April 2011, leaving the index unchanged for 11 years from then. A bearish Death Cross between the 20- and 50-day SMAs formed, hinting at further losses. Key support seems to be the 100% Fibonacci extension at 2137.

KOSPI daily chart

Hang Seng technical analysis

Hang Seng futures were little changed on Monday as prices left behind a Doji candlestick pattern. This is a sign of indecision. Immediate support appears to be the 100% Fibonacci extension at 17414, with resistance as the 18037 – 18312 zone. The latter was former support which can be traced back to lows from 2016.

Hang Seng daily chart

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