Indices’ heavyweights led overnight market moves: S&P 500, USD/JPY, EUR/USD

Market Recap

A significant earnings miss from Goldman Sachs (-6.4%) has prompted a 1.1% drop in the DJIA overnight, as the index’s second-largest weightage failed to meet already-low market expectations amid weaker revenue and a surge in operating expenses. Other major US banks reacted by reversing some of their last Friday’s gains as well, with the sole outlier being Morgan Stanley (+6.2%), which exceeded earnings expectations on record wealth management revenue and growth at its trading business. On the flipside, the Nasdaq managed to eke out a slight positive gain (+0.2%), single-handedly supported by tech powerhouses, Tesla (+7.4%) and Nvidia (+4.8%). Surging sales in China after Tesla’s price cut are aiding to cool previous pessimism, after having retraced as much as 48% since December last year.

Movements in the US dollar and Treasury yields were somewhat measured after the holiday break, but the overall downward trend remains intact on lower highs and lower lows. Equity bulls could still be in control for now, with the VIX’s short-lived attempt to reclaim its key 20 level yesterday, along with improving market breadth in the S&P 500 since the start of the year. As with the past two earnings season, any signs that earnings are less bad than feared will be looked upon to support a near-term risk-on environment. For the S&P 500, a moment of reckoning lies up ahead, as the index is back to retest a key downward trendline, which has kept its lower highs in place since 2022. Overcoming the trendline resistance at around the 4,000 level could suggest a reversal in longer-term sentiments to the upside. A key test will lie ahead, as we head into the second half of January where seasonality tends to be less bullish.

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.55%, ASX +0.10% and KOSPI -0.25% at the time of writing. A series of stronger-than-expected economic data out of China has failed to drive further upside for Chinese equities yesterday, with market participants choosing to focus on the still-weak economic picture for some profit-taking. Technical conditions at overextended levels could increase the chances for some near term retracement, as the Hang Seng Index found some resistance at an upper wedge trendline as well. That said, the overall upward bias will leave any retracement on watch for the formation of a new higher low.

The Bank of Japan (BoJ) meeting may undoubtedly be the key risk event today, with its previous surprise tweak to its yield curve control (YCC) policy igniting a year-end risk-off session. Speculations are now brewing for further policy tweaks, with rising doubts that the BoJ’s accommodative policies will be able to stay for longer. Any such moves later today will provide another round of ‘hawkish’ surprise to drive USD/JPY lower on declining yield differentials. Thus far, the USD/JPY has been guided by a descending channel pattern since mid-November last year, with its ongoing downward trend presented in the series of lower highs and lower lows. The pair is attempting to stabilise at the lower channel trendline at the 126.84 level, with the outcome of the BoJ meeting in focus to singlehandedly trigger huge moves on either side. Any bounce off the central bank’s inaction could face resistance at the 130.80 level, leaving any formation of a lower high on watch to reinforce its downward bias.

On the watchlist: EUR/USD finding resistance at upper channel trendline

Despite a surprise rebound in Germany’s ZEW Economic Sentiment Index (16.9 versus -15 consensus) in January, the EUR/USD struggled to defend its recent gains as a potential change in short-term sentiments were presented in large bearish candles intraday during the US session. This comes after the pair hit resistance at an upper channel trendline, while the US dollar index is attempting to stabilise at its seven-month low. Further retracement could pave the way to retest the 1.061 level next, where the lower channel trendline coincides with a key 38.2% Fibonacci retracement level, leaving any formation of a higher low on watch to continue its upward trend.

Tuesday: DJIA -1.14%; S&P 500 -0.20%; Nasdaq +0.14%, DAX +0.35%, FTSE -0.12%