Attempts for risk sentiments to stabilise but much awaits: Nasdaq 100, Hang Seng Tech, USD/SGD

Market Recap

Major US indices built on their recent losses overnight (DJIA -0.76%; S&P 500 -0.76%; Nasdaq -0.96%) but showed a slightly lesser extent of decline from the day before. Lingering growth concerns and an unmoved Federal Reserve (Fed) to recent economic data continue to keep risk sentiments in check, but some attempts to ease up on recession tensions were presented with a slight recovery in US Treasury yields overnight. Comments from Fed Vice Chair Lael Brainard on growing chances for a ‘soft landing’ were viewed positively, but the subsequent paring of gains suggests that it will take much more to convince markets to take on more risks. For now, the downward bias for Treasury yields remains intact, with the US 10-year breaking below a key upward trendline on Wednesday’s dip. Further moderation could be on the table and being viewed as an indication of mounting growth concerns could remain a headwind for risk assets. We could see less of Fed policymakers’ comments as we head into the official Fed blackout period at the end of this week, leaving most attention on corporate earnings releases to drive market moves.

Being the first major US tech company to release its earnings, Netflix has provided a positive start with its higher-than-expected quarter four (Q4) subscriber numbers (7.66 million paid subscribers versus 4.57 million expected). Having initially lost customers in the first half of 2022, the current results mark the second consecutive quarter of subscriber growth, which provide further conviction that growth is picking up. This comes on the back of strong acquisition and retention, along with an increase in average paid memberships. Revenue growth for the quarter one (Q1) 2023 were revised to be slightly higher as well (4% versus 3.7% projected).

While US futures this morning are trending in slight positive territory, much is still on the line, with the Nasdaq 100 index finding resistance at a key downward trendline just earlier this week. This still runs the risk of the index forming a lower high and reinforces an ongoing downward trend. A break above the trendline resistance at the 11,600 level will still be necessary to provide greater conviction of a shift in sentiments to the upside. On the flipside, support remains at the 10,600 level, which marked its multiple bottoms over the past quarter.

Asia Open

Asian stocks look set for a muted open, with Nikkei -0.17%, ASX +0.26% and KOSPI -0.01% at the time of writing, as sentiments have to juggle between further losses in Wall Street and after-market optimism in Netflix’s results. The Nasdaq Golden Dragon China Index managed to defend a positive close (+1.4%), largely following through with some resilience in the Chinese indices yesterday. The economic calendar this morning places Japan’s inflation rate on the radar, with market participants on the lookout if the data may challenge the recent Bank of Japan (BoJ)’s decision of a policy no-change. Coming in line with market expectations (core inflation rate at 4%) has kept strength in Japanese yen in check for now, although a peak in Japan’s inflation remains yet to be seen. A 0.1% rate hike from the BoJ in June this year remains the consensus.

On another note, while the upward trend in the Hang Seng Tech Index has been displayed in a series of higher highs and higher lows since November last year, the index is now heading into a Fibonacci confluence zone as resistance to overcome. Along with a bearish divergence on moving average convergence/divergence (MACD), the lesser-risk trade could be to wait for a retracement for build-up in long positions. With an upward trendline on watch as near-term support, any break below the trendline support at the 4,416 level could place the 4,000 level in focus next.

On the watchlist: USD/SGD hanging at weekly consolidation support

The USD/SGD has been on a slide since October 2022, slumping close to 10% lower in a short span of just four months and bringing the pair to retest its four-year low at the 1.316 level. Having largely traded in a consolidation range in the weekly timeframe, the 1.316 level has marked a key lower consolidation base and along with the relative strength index (RSI) in weekly oversold territory, that could leave any dip-buying on watch for some near term relief. That said, much still awaits for a clear catalyst to induce a more sustained upside. CFTC data suggests that speculators have effectively switched to net-short US dollar positioning against other G10 currencies since November 2022, and any break below the 1.316 level on further US dollar weakness could still pave the way towards the 1.286 level next.

Thursday: DJIA -0.76%; S&P 500 -0.76%; Nasdaq -0.96%, DAX -1.72%, FTSE -1.07%