S&P 500 on track to deliver its first positive weekly performance in two months.

Market Recap

Coming after seven consecutive weeks of decline, US equity markets are on track to deliver its first positive weekly performance, resuming a relief rally brought on by the recent Fed meeting minutes release. The catalysts overnight come from another round of strong earnings from US retailers, along with a better-than-expected rise in personal consumption expenditures (3.1% versus first estimate of 2.7%) for the second quarter, which have provided some relief that strength in US consumer spending is better-positioned to weather inflationary pressures and ongoing Fed’s tightening ahead. US retailer Macy’s has outperformed earnings estimates, with a boost to its full-year guidance on resiliency among higher-income customers. The optimism has lifted travel-related companies as well, such as cruise lines, airlines and hotels.

Pockets of weakness from economic data overnight may have surfaced with the worse-than-expected contraction in US Q1 GDP (-1.5% quarter-on-quarter versus preliminary reading of -1.3%), along with a further plunge in pending home sales (-3.9% month-on-month versus -2% forecast). That said, markets are in need of a relief catalyst after multiple weeks of downbeat mood and optimism over current strength of US consumer spending has taken on that role for now.

The day ahead will bring focus to the US PCE price index reading for April, which is expected to show some moderation in pricing pressures, in line with the recent US CPI print. That said, one may recall that market participants have not bought into the potential peak in inflation previously with the US CPI reading and a higher-than-expected reading ahead for the PCE price index remains a risk factor to watch.

On the technical front, the S&P 500 has previously broken below the neckline of a head-and-shoulder pattern in early-May, with the recent recovery in risk sentiments bringing a retest of the neckline once again. One may watch for any potential break above the 4,140 level, which may mark a key support-turned-resistance to overcome for the index.

Asia Open

Asian stocks look set for a positive open, with Nikkei +1.38%, ASX +1.08%, KOSPI +1.01% at the time of writing. Improved risk sentiments in Wall Street, along with earnings outperformance from Alibaba and Baidu, may aid to fuel some upside for the Asia region into today’s session.

Alibaba’s quarterly revenue rose by a better-than-expected 9% on a year-on-year basis, which may ease some fears on the economic impact of China’s virus restrictions. Its guidance to focus on cost control and improving operating efficiency ahead still seem to suggest that its growth trajectory continues to be capped. That said, with its share price down more than 55% over the past one year, any signs of optimism in the results will be looked upon to lift near-term sentiments, especially coming after recent Tencent’s lacklustre results. On another note, Baidu has also beaten top-line estimates, aided by demand for its cloud and artificial intelligence (AI) products. Both share prices have surged more than 14% overnight, with the Nasdaq Golden Dragon China Index up more than 7.5% overnight. That may drive some relief for Chinese tech shares today.

The day ahead will bring focus to the preliminary reading for Australia’s April retail sales, which may be looked upon to drive near-term moves in the AUD/USD. Current expectations are for a 0.9% increase month-on-month, down from the previous 1.6%. After breaking above a head-and-shoulder pattern on the four-hour chart last week, the AUD/USD has been largely trading in consolidation and the upcoming retail sales data will be closely watched as a key driver.

On the watchlist: FTSE 100 moving to retest its pre-Covid-19 high

The FTSE 100 seems on track to retest its pre-Covid-19 high at the 7,700 level, with the leaning of its sector weightage towards value stocks as opposed to growth leading to some resilience in the index. Year-to-date, its performance remains in positive territory at 4.2%. Taking reference to the IG client positioning for the FTSE 100, retail trader data shows that 22% of traders are net-long with the ratio of traders short to long at 3.48 to 1. We typically take a contrarian view to crowd sentiment, and the fact that traders are net-short suggests FTSE 100 prices may continue to rise. On the weekly chart, a hammer candlestick formed after a retest of its 200-period moving average (MA) suggests some attempt for the index to hold up amid recent sell-off. One to watch for any break above the 7,700 level, which may suggest the continuation of its upward trend.

Thursday: DJIA +1.61%; S&P 500 +1.99%; Nasdaq +2.68%, DAX +1.59%, FTSE 100 +0.56%