Initial rally in Wall Street fizzled: S&P 500, Nikkei 225, GBP/USD

Market Recap

The second consecutive day of decline in US 10-year yields and the US Dollar heading to its one-month low had driven an initial turnaround in risk sentiments, but the rally eventually fizzled into the close. Coming after recent disappointing showings from Microsoft and Alphabet's results, sentiments may remain cautious with further big tech earnings releases on the calendar. The S&P 500 sector performance presented a more defensive lean with outperformance in energy, healthcare, and consumer staples, while growth sectors underperformed.

Nevertheless, some expectations that the Fed could slow on its rate hike process after the November meeting are brewing. This was further reinforced by the surprise of a lower-than-expected rate hike from the Bank of Canada (BoC) yesterday, with its governor signalling that the central bank is approaching the end of its monetary tightening cycle. Concerns about economic growth conditions seem to be seeping into global central banks’ radar and some expectations are set for the Fed to indicate the same as well. A 75 basis-point hike seems like a done deal in the Federal Open Market Committee (FOMC) meeting next week, but any guidance of a subsequent rate slowdown or amplifying concerns about economic conditions will be on watch to drive further upside for the indices.

After-market sentiments had to digest the lower-than-expected revenue guidance for the current holiday quarter from Meta Platforms. Higher-than-expected cost pressures and a stronger US dollar remained key headwinds for the big tech firm as well, dragging its share price lower by close to 20% after-market. For the S&P 500, it continues to trend above the 3,800 level, which will remain a key level of support in the near term. The overall upward bias could seem to remain with the formation of a near-term higher high, while a retest of the resistance zone is playing out.

Asia Open

Asian stocks look set for a muted open, with Nikkei -0.10%, ASX +0.54% and KOSPI +1.26% at the time of writing. The Asia trading session was met with better-than-expected third-quarter GDP figure from South Korea, which could drive the outperformance for the KOSPI this morning. That said, while the GDP figure is less bad than feared, it still marked the slowest growth in a year on a quarter-to-quarter basis. The outperformance was uplifted by pent-up consumer spending and corporate firms’ investment, but cooling global demand remained a headwind for its net exports. A muted growth outlook could remain on the table for South Korea’s economy, as global economic conditions continue to moderate whilst pent-up spending may see some fading from the Covid-19 reopening. The day ahead will leave China’s industrial profits in focus, which could reinforce the lower-for-longer growth stance in the region as well. Overall, a flatter trading session could be expected, as sentiments digest the weak showing in Wall Street overnight while still attempting to hold up on the ongoing retracement in the US dollar.

After breaking above an ascending triangle pattern yesterday, the Japan 225 index is back to retest the upper trendline as a level of support. The near-term upward bias could still remain intact, with the formation of a new higher high. Should the support hold, a retest of the key 28,000 level could remain on the cards.

On the watchlist: GBP/USD marks a break above ascending triangle pattern

Further weakness in the US dollar, along with improved market confidence in the UK on the new leadership, has brought the GBP/USD close to its two-week high. This marks a break above the 1.145 resistance, where the upper trendline of an ascending triangle pattern stands in place, with the formation of a new higher high providing a near-term upward bias for now. Further upside may leave the 1.205 level on watch, and much will continue to revolve around the US dollar’s movement. Despite breaking below a near-term upward trendline, the US dollar is heading close to a support level at 108.70, so a further break of that level could be necessary.

Wednesday: DJIA +0.01%; S&P 500 -0.74%; Nasdaq -2.04%, DAX +1.09%, FTSE +0.61%