S&P 500 spared from a close in bear market territory with last-hour dip-buying sentiments

Market Recap

The S&P 500 briefly fell into bear market last Friday but ended the day flat (+0.01%) with a last-hour attempt by dip buyers to keep the index away from the bear territory for now. This marked the seventh consecutive week where the S&P 500 has closed in the red, which may spur talks of whether we will be able to see an oversold bounce in the near-term. The bullish divergence on the relative strength index (RSI) may provide some hopes for that by pointing towards some waning in downside momentum, although one may note that the longer-term trend remains downward bias with the lower highs and lower lows formed since the start of the year. A head-and-shoulder pattern also seems to be in place, with an unsuccessful attempt last week to reclaim above its neckline. Any near-term relief rally may leave the key 4,000 level on watch as resistance to overcome.

The flattening of the US yield curve suggests that economic growth concerns remains at the forefront of investors’ minds and that may still keep market participants from taking on excessive risks over the coming months as the impact of Fed’s tightening continues to seep into economic data. The week ahead will bring about a series of flash purchasing managers index (PMI) data, along with the release of the US Federal Open Market Committee (FOMC) minutes and US core personal consumption expenditures (PCE) index reading for April. The Fed minutes will be looked upon to provide greater clarity on the Fed’s tightening path and for now, it seems that markets are buying into the Fed’s stance of ‘not actively considering’ 75 basis-point hikes over the next two FOMC meetings as reflected in the Fed Funds futures. On another note, expectations for the US core PCE are pointing to a moderation in pricing pressures to 4.9% year-on-year (YoY) increase compared to the previous 5.2%. While that may once again spur some hopes of a potential peak in inflation, the recent US CPI release suggests that a higher-than-expected figure may still pose a headwind for equities.

Asia Open

Asian stocks look set for a positive open, with Nikkei +1.05%, ASX +0.35%, KOSPI +0.44% at the time of writing. Coming after the last-hour dip-buying efforts to end last week, the US futures are following through with some positive moves this morning, which may provide some relief for Asia markets. Sentiments may continue to digest the more-than-expected reduction in China’s five-year loan prime rate by 15 basis-point last Friday, which reflects authorities’ attempt to support its property market and lift loan demand. This came after China’s loan growth plunged in April to the worst level in almost five years, with further contraction in mortgage loans. The one-year loan prime rate was kept unchanged. Markets reacted positively to the move on Friday, with one to watch for any follow-through to start the new week.

The day ahead will bring focus to Singapore’s inflation rate for April, with expectations for a reading of 3.4% YoY, up from the previous 2.9% and reflecting no signs of moderations in pricing pressures thus far. Further tightening moves may be unlikely to occur in the near-term, with the next Monetary Authority of Singapore (MAS)’ policy statement happening only in October and the central bank’s projection for a peak in inflation to take place in quarter three (Q3) 2022. That said, a higher-than-expected reading may translate to greater pressure for the MAS to act more aggressively, potentially providing a near-term lift for the Singapore Dollar.

The key risk event for the region this week may be the Reserve Bank of New Zealand (RBNZ) interest rate decision on this coming Wednesday. Market expectations are leaning towards a 50 basis-point hike to 2% in the upcoming meeting and hiking by 25 basis-point may be deemed as a sign of dovishness. For now, the NZD/USD seem to be driven more by US dollar moves, with a bullish moving average convergence/divergence (MACD) crossover suggesting a potential shift in sentiments to the upside. The upcoming RBNZ decision will hence be looked upon to provide further validation for the upward move. Near-term, the 0.653 level seems to be a resistance to overcome, where a 38.2% Fibonacci retracement level lies.

On the watchlist: Inverse head-and-shoulder imprinted on AUD/USD

On the four-hour chart, an inverse head-and-shoulder pattern seems to be imprinted on the AUD/USD, with the pair currently hanging at its neckline. The conclusion of the Australian National Election saw Labor Party leader Anthony Albanese clinching the seat as Australia’s new prime minister, which was met with some attempt by Aussie bulls to push higher in today’s early-morning trade. One may also watch for any follow-through dip-buying sentiments to start the new week, with improved risk sentiments potentially translating to further profit-taking in the safe-haven dollar. Further upside for the currency pair may leave the 0.718 level on watch next as potential resistance to overcome ahead.

Friday: S&P 500 +0.01%; DJIA +0.03%; Nasdaq -0.30%, DAX +0.72%, FTSE 100 +1.19%