Cautious start to the week as US inflation data looms: Nasdaq 100, ASX 200, Gold

Market Recap

Major US indices saw further de-risking at the last hour last Friday, as US Treasury yields and the US dollar head higher in the lead-up to the key US consumer price index (CPI) and Federal Open Market Committee (FOMC) meeting this week. The US producer price index (PPI) print was closely looked upon to provide clues of the US inflation picture, and while the overall trend continues to point towards disinflation, higher-than-expected prints on both headline and core readings have renewed traction into the long-dollar trades while prompting a sharp move lower for equities. Persistence in factory-gate prices could come with deeper margin compression among firms or greater cost pass-through to consumers, both of which are not supportive of taking on more risks. In addition, US consumer sentiment data also came in above consensus (59.1 versus 56.9 forecast), which could point towards a resilient demand outlook, but that was largely met with little market reaction. The lead-up into the US CPI data release tomorrow may give rise to a cautious risk environment to start the week, with potentially a drift lower for risk assets.

The VIX index continues to hold above the 20 level, which is generally looked upon as a threshold between more stable periods (<20) or one with heightened stress (>20). Renewed upside in Treasury yields to end last week has also driven the rate-sensitive Nasdaq 100 index to retest its key resistance-tuned-support at the 11,600 level once more. Any downward break could pave the way to retest its November bottom, while greater indications of a more sustained upside may warrant a break above the 12,000 level.

Asia Open

Asian stocks look set for a negative open, with Nikkei -0.47%, ASX -0.53% and KOSPI -0.68% at the time of writing. US futures this morning continue to point to a drift lower as the US dollar heads to the upside, seemingly with some building bets for a more hawkish guidance from the Federal Reserve (Fed). Near-term market expectations seem well-anchored for a 50 basis-point (bp) hike in the upcoming FOMC meeting, which is in line with what the Fed has previously guided, but longer-term rate expectations could be at the forefront in driving market moves. The economic calendar remains on a quiet tone today, with India’s inflation rate likely to be the focus. Expectations are for a downtick to 6.4% from previous 6.8% and any downside surprise could bring the Reserve Bank of India (RBI) closer to the end in its hiking process. More signs of an easing shift towards China’s zero-Covid stance were also displayed with the downplaying of the virus risks over the weekend in terms of its death rate. One to watch if the headlines could support the Hang Seng Index above its 200-day moving average (MA).

On another note, the ASX 200 has come off its seven-month high, with the reversal in its moving average convergence/divergence (MACD) suggesting a dwindling upward momentum for now while an upward trendline in place since October this year seems to have given way. The index is currently retesting a key 61.8% Fibonacci retracement, and failure for the line to hold could prompt further downside to the key 7,000 level next.

On the watchlist: Gold prices hovering below key US$1,800 level ahead of major risk events

Gold prices have surged close to 11% since November this year, tapping on a weaker US dollar and a broad-based retracement in Treasury yields for some unwinding of previous bearish positioning. The Fed’s peak hawkishness narrative is at play, but that will be put to the test this week with the key US CPI data and the FOMC meeting providing much for markets to assess on whether expectations have been aligned with the Fed or a more hawkish calibration is needed. Gold prices have been trading on a rising wedge formation in the near-term, with the short-lived retracements suggesting that prices are attempting to move higher for now. The US$1,800 level will be on watch ahead, which marked a key support-turned-resistance and overcoming it may prompt a move towards the US$1,840 level next.

Friday: DJIA -0.90%; S&P 500 -0.73%; Nasdaq -0.70%, DAX +0.74%, FTSE +0.06%