S&P 500’s relief rally took a halt following weakness in tech

Market Recap

The two-day relief rally in the US equity markets came to a halt yesterday as a gloomy outlook forecast from Snap had a knock-on impact on growth names. Weakness in big tech has driven underperformance in the Nasdaq (-2.35%) overnight, while the DJIA (+0.15%) managed to eke a close in positive territory, reflecting some markets’ preferences for value counters with more stable cashflows and relatively less pricey valuation amid economic growth concerns.

On the economic data front, flash PMI readings globally pointed towards ongoing expansion, but moderation in economic activities continue to be seen. Further dampening of growth may show up in the coming months, as no signs of relief on elevated inflation prints thus far has translated into pressure for central banks to continue with its tightening process. Some relief may come from the slight easing of pricing pressures in the data, but with readings still hovering at elevated levels, the pace of decline may be a crucial point to note in the coming months.

Adding to the gloomy outlook may be the sharp fall in US new home sales for April by the most in nearly nine years, with the lower-than-expected reading reflecting a quicker weakening of demand in the housing market. Higher mortgage rates and lack of affordability are the key driving factors. The risk may come in the form of further moderation in homes prices ahead, which may put a dent on consumer sentiments and cap their spending.

Ahead, attention will be placed on the Federal Open Market Committee (FOMC) minutes release to provide greater clarity on the Fed’s tightening path, following its 50 basis-point hike in April. That said, recent views from policymakers seem to have seen some adjustments lately. Overnight comments from Jerome Powell seems to point towards less confidence in executing a soft landing, marking a shift in tone from previous weeks by highlighting uncertainty from geopolitical risks and economic slowdowns in Europe and China. Nevertheless, the Fed minutes will be closely looked upon as a catalyst to drive near-term market movement over the coming days.

The Financial Select Sector seems to be displaying a near-term double-bottom on its four-hour chart, with recent upward move marking a retest of its neckline. A greater resistance to overcome may be at US$35.15, where a downward trendline lies in coincidence with a horizontal support-turned-resistance. With some shift in preferences towards value, one may watch for any break above the US$35.15 level to suggest a potential shift in sentiments to the upside.

Asia Open

Asian stocks look set for a mixed open, with Nikkei -0.39%, ASX +0.41%, KOSPI +0.34% at the time of writing. Some attempt to pare back on losses was seen on US futures this morning, but the overall mood in equity markets remains largely downbeat.

Overnight, the Nasdaq Golden Dragon China Index plunged close to 7%, alongside the tech weakness in Wall Street and some lingering caution ahead of key earnings result releases from Alibaba, Baidu and Pinduoduo this week. The earnings will be looked upon to gauge the impact of technology clampdown and economic conditions, and recent results from Tencent have not painted a positive picture thus far. Despite some broad measures announced to support growth, that has not seemed to lift market confidence with lingering doubts on its zero-Covid-19 situation. The day ahead will place the Reserve Bank of New Zealand (RBNZ) interest rate decision in focus. Market expectations are leaning towards a 50 basis-point hike to 2% and hiking by 25 basis-point may be deemed as a sign of dovishness for the kiwi.

Closer to home, the final estimate for Singapore’s Q1 GDP was revised higher to 3.7% from the previous 3.4%, in line with expectations. The Ministry of Trade and Industry (MTI) has maintained its 2022 growth forecast at 3-5%, adding that growth is more likely to come in at the lower half of the forecast range. Geopolitical risks and China’s Covid-19 lockdowns remain as elements of uncertainty, guided as likely to be more severe and prolonged than earlier expected.

The Singapore Blue Chip index remains in a downward trend, with a recent lower high formed at the start of the month. While the hammer candlestick at the start of the month may suggest an attempt by dip buyers to support the index at a key 76.4% Fibonacci retracement level, resistance is found at the 300.00 level, which may have to be overcome in order to provide confirmation. Further downside may leave the 280.00 level on watch as potential support.

On the watchlist: NZD/USD on near-term higher highs ahead of RBNZ’s rate decision

Ahead of an expected rate hike by the RBNZ, the NZD/USD has been trading on a near-term higher highs and higher lows since last week as seen from the four-hour chart. A break above the neckline of an inverse head-and-shoulder pattern also suggested a potential shift in sentiments to the upside, with a 50 basis-point hike on watch for further validation. Continued US dollar weakness has remained as a tailwind for the currency pair as well, with the slight paring back of rate hike bets on economic growth fears outweighing its safe-haven status thus far. Near-term, the 0.653 level will be on watch as a previous support-turned-resistance level, in coincidence with a key 38.2% Fibonacci retracement level.

Tuesday: S&P 500 -0.81%; DJIA +0.15%; Nasdaq -2.35%, DAX -1.80%, FTSE 100 -0.39%