Bearish end to the week following Fed meeting: Nasdaq 100, ASX 200, Silver

Market Recap

Major US indices largely followed through with its post-Fed sell-off to end last week and while there were some attempts for a last-hour recovery, efforts were short-lived and quickly overturned. All 11 S&P 500 sectors closed in the red, with the communication services sector tapping on some strength in Meta Platforms’ share price for resilience. The US flash Purchasing Managers' Index (PMI) readings for December provided the only economic data of note, which came in lower-than-expected. Both the manufacturing (46.2 versus 47.7 forecast) and services (44.4 versus 46.8 forecast) sectors revealed a deeper push into contractionary territory, but with the Federal Reserve (Fed) seemingly unwavered on loosening up its hawkish stance at its recent meeting, the poor economic data did little in shifting market rate hike expectations. For now, market expectations still remain more dovish than the Fed’s views, which may run the risk of further hawkish recalibration if the Fed hold firm on its outlook. Recent comments from Fed officials suggested the likely possibility, with New York Fed President John Williams stating that the Fed may raise rates more than it expects next year while San Francisco Fed President Mary Daly reiterated the absence of rate cuts until 2024.

Coming after a period of consolidation, the Nasdaq 100 index has broken below its key support at the 11,600 level in the aftermath of the Fed meeting. This may leave a retest of its previous bottoms at the 10,600 level on watch, where a Fibonacci confluence zone resides. Heading into the new week, there may be some near-term attempts to stabilise after the aggressive sell-off last week, but the overall downward bias will seem to remain until the longer-term downward trendline is overcome.

Asia Open

Asian stocks look set for another negative open, with Nikkei -1.29%, ASX -0.19% and KOSPI -0.61% at the time of writing. Chinese equities may remain fairly resilient, with the Nasdaq Golden Dragon China Index eking out a positive close of 0.35% to end last week, but the last-hour sell-off could still suggest a cautious risk environment. The key event this week may be the Bank of Japan (BoJ) interest rate decision tomorrow and while a no-change in accommodative stance is still the consensus, any shift in tone to lay the groundwork for an eventual rise in interest rates next year will be heavily scrutinised. Current market expectations are not pricing for any rate changes until April 2023.

Having broken below a downward trendline in early-December, the ASX 200 has further pushed to a new lower low last week, which suggests a reversal in sentiments at play. There were some attempts to stabilise this morning after retesting its November low, but with the near-term downward bias in place, that may leave the formation of any lower high on watch. Further downside could leave the 7,020 level on watch ahead.

On the watchlist: Hammer formation in silver suggests some dip-buying efforts

After a post-Fed sell-off brought silver prices to its one-week low, the formation of a bullish hammer candlestick to end the week suggests some dip-buying efforts in retaining silver prices’ upward trend. Renewed strength in the US dollar and higher Treasury yields will be on watch as potential headwinds capping silver prices’ upside but for now, both have been trading on lower highs and lower lows despite a hawkish takeaway from the recent Fed meeting. Any confirmation close above the near-term hammer candlestick formation could further reinforce an attempt to move higher this week, leaving the US$24.20 level on watch as potential resistance. On the contrary, any downward break of the upward trendline could leave the key US$25.00 support in focus.

Friday: DJIA -0.85%; S&P 500 -1.11%; Nasdaq -0.97%, DAX -0.67%, FTSE -1.27%