S&P 500 closed on a strong note overnight, but gains came under pressure after-market

Market Recap

A broad-based rally overnight saw major US indices gain more than 1.5% as markets looked for a relief catalyst for an oversold bounce after its seventh consecutive week of losses. Positive commentary by US President Joe Biden to consider reducing tariffs on Chinese exports provided a reason for that. All 11 S&P 500 sectors were in the green, with outperformance in financials, energy and tech.

That said, talks of reducing tariffs on China’s exports have surfaced before and the lack of any concrete follow-through remains an element of disappointment for markets. While the move may seek to address the inflationary pressures faced by the US economy, Biden has to strike a fine balance between not appearing soft to China ahead of the mid-terms elections and lifting competition for its domestic industries. The scale of any potential reduction remains a key element to watch as well, with a full tariff removal unlikely to happen.

While US equity markets ended the trading day on a strong note, gains came under pressure after-market following Snap’s (-29.7%) warning of deteriorating macroeconomic conditions ahead. Its cut to revenue and profit outlook dragged down shares of Meta (-7%), Google (-3.7%), Twitter (-3.9%) and Pinterest (-12.2%) as well. This suggests that overall sentiments in the markets remain shaky, with the key overhang of moderating economic conditions likely to linger over the coming months amid the element of uncertainty from the Fed’s continued tightening.

For the US Tech 100 index, resistance ahead may be at the 12,200 level, where a previous support-turned-resistance seems to coincide with a downward trendline since April this year. A bullish divergence on the moving average convergence/divergence (MACD) and relative strength index (RSI) may still leave the prospect of a temporary bounce intact, with much to depend on the upcoming Federal Open Market Committee (FOMC) minutes. Overall sentiments remain mixed, warranting some wait-and-see for now as dip-buying sentiments are pitted against the downward trend in the equities market.

Asia Open

Asian stocks look set for a slightly weak open, with Nikkei -0.41%, ASX -0.08%, KOSPI -0.44% at the time of writing. Overall sentiments remain fragile with some weakness in US futures this morning seeking to pare back the gains in Wall Street overnight. Chinese equities may remain in focus, with additional tax relief of more than 140 billion yuan announced to aid China’s businesses in coping with virus restrictions, bringing about more visible follow-through of its previous policy pledges. This came shortly after a recent cut to its five-year loan prime rate last week to support its property sector.

US-listed Chinese shares, however, provided a mixed response to the recent fiscal moves, with the Nasdaq Golden Dragon China Index in the red by 0.92%. Some reservations may linger as market participants await the next obstacle on the corporate earnings front from Alibaba and Meituan. Markets have caught a glimpse of the impact of regulatory risks and Covid-19 lockdowns from Tencent’s recent lacklustre earnings and the potential mirroring of weaker big tech earnings ahead may be driving some caution.

On another note, the latest SGX fund flow data revealed the first week of net institutional inflows into the STI in two months, although the scope in net inflows (+S$106 million) may pale in comparison to previous weeks of outflows. Economically-sensitive sectors such as consumer discretionary and industrials saw some inflows, aiding to offset the continued outflows in financials and real estate investment trusts (REITs). For the STI, a key upward trendline supporting the index since December 2020 remains one to watch, with attempts to bounce off the trendline seemingly short-lived for now. One to watch if the line holds over the coming days.

On the watchlist: EUR/USD may move to retest upper trendline of descending channel pattern

Comments from ECB president Christine Lagarde yesterday hinted at a rate hike in the July meeting and an exit of negative interest rates by the end of September, with the long-awaited response to curb inflation driving gains in the euro. Since February this year, the currency pair seems to be trading within a descending channel pattern, with the recent upward move putting the upper channel trendline on watch at the 1.077 level. A break above the channel may confirm a longer-term shift in sentiments to the upside, after the pair largely traded in a downward trend since May last year. That may leave the 1.112 level on watch next.

Monday: S&P 500 +1.86%; DJIA +1.98%; Nasdaq +1.59%, DAX +1.38%, FTSE 100 +1.67%