Sharp turnaround saw S&P 500 defending its key 4,000 level: DJIA, STI, Silver

Market Recap

A sharp rally in the latter half of the trading session led major US indices to end the day in positive territory, with the S&P 500 successfully defending its key 4,000 level for now. This follows as Treasury yields took a breather after their recent surge, relieving market bulls of a weighing catalyst overnight. The two-year yields continue to hover around resistance at its 15-year high, seemingly awaiting further cues after the recent hawkish recalibration in rate hike expectations. On the other hand, a surprise delivery came from VIX with a 5% move lower, reflecting a positive signal for the risk environment to recover, with all eyes now on the January release for US core Personal Consumption Expenditure (PCE) price index later tonight. Expectations are for a tick lower to 4.3% growth year-on-year from the previous 4.4%, but month-on-month reading could present some inflation persistence with an expected 0.4% rise from the previous 0.3%. That said, with market rate expectations having swung towards the hawkish end in a short span of the past month, there is a possibility that sentiments could recover on higher-than-expected reading as long as current rate expectations remain well-anchored.

Market moves following the underperformance of US GDP figure (2nd estimate) were short-lived, as market participants faced indecision over conflicting signals from weaker-than-expected consumer spending and more persistent prices. The technology sector (+1.6%) is the outperformer, single-handed supported by NVIDIA (+14%). The raise in the company’s forward guidance has pushed back against previous fears of the ongoing chip downturn and present some hopes that the worst could be over. The DJIA could be at a point of reckoning, with some dip-buying overnight after hitting the bottom range of its ranging pattern. A positive follow-through tonight could confirm the bullish pin bar formation and present opportunities for further upside.

Asia Open

Asian stocks look set for a positive open, with Nikkei +0.72%, ASX +0.36% and KOSPI +0.33% at the time of writing. The positive handover from Wall Street has provided some room for the region to recover as well, following recent downside. This morning saw Japan’s January core inflation rate coming in line with expectations at 4.2% year-on-year, but nevertheless, the ongoing upmove in inflation reading without a peak in sight continues to anchor market expectations of a potential rate hike from the Bank of Japan (BoJ) in July this year. This could seem to coincide with the expected timeline for a Federal Reserve’s (Fed) rate pause, with the divergence in policy suggesting that a new bull run for the USD/JPY (大口） seems hard to come by.

On a more local context, Singapore’s bank earnings have concluded this morning, with the release of OCBC’s 4Q earnings. Mirroring the likes of UOB and DBS, net interest income hit a new quarterly high on a 79 basis-point (bp) upward revision in net interest margin from the interest rate upcycle environment. However, other areas of weakness continue to be presented with a 42% decline in non-interest income, which suggests that earnings conditions may become more challenging as the interest income portion faces downside risks towards the second half of the year on a potential Fed’s rate pause. Dividends were raised by 42% to 40 Singapore cents per share, providing a forward dividend yield of 6.4% at current price if dividends are maintained.

Thus far, stellar earnings from the Singapore’s lenders were met with some doubts on its sustainability into 2023, which saw the Straits Times Index (STI) falling back below its key 3,320 level. Its moving average convergence/divergence (MACD) is heading into negative territory, signalling a potential switch to bearish momentum, following the recent formation of lower lows. The 3,200 level could be on watch next as near-term support.

On the watchlist: Silver prices rejecting key US$22.00 level

Strength in the US Dollar continues to keep silver prices in check, which failed to move beyond the key US$22.00 resistance level upon a retest this week. The formation of a bullish crossover on MACD was also overridden, with the formation of a new lower price high reflecting the risks of further downside. The US$20.88 level will be the next level to watch, where a Fibonacci confluence coincides with its 200-day moving average (MA). Failure for buyers to defend this level could potentially pave the way towards the US$19.60 level next.

Thursday: DJIA +0.33%; S&P 500 +0.53%; Nasdaq +0.72%, DAX +0.49%, FTSE -0.29%