Series of US labour data on watch this week: S&P 500, Nikkei 225, Brent crude

Market Recap

The holiday-shortened trading week saw major US indices inching higher amid thinner trading volume, with a series of US labour data in focus this week to provide greater indications for market direction. With the Black Friday shopping event, US shoppers have spent a record US$9.1 billion (2.3% year-on-year), as consumers are not stepping away amid high inflation and recession concerns. Demand resilience seems to bode the question of bringing inflation persistence onto the table. Nevertheless, having seen the downside surprise in the US Consumer Price Index (CPI) reading, markets are getting accustomed to put inflation risks at the backseat and the Personal Consumption Expenditures (PCE) price reading this week will be looked upon to reinforce such expectations. A 0.3% month-on-month moderation from previous 0.5% in the core PCE price index is the consensus. Apart from that, a series of labour market data is lined up on the economic calendar as well. In line with the Federal Reserve (Fed)’s aim, market participants will want to see further moderation in the US labour market and good news in the form of higher-than-expected job gains could be bad news for the market.

For now, the US dollar is hovering around its mid-November low, supported by news of growing unrest in China. That will leave the 105.00 level on close watch, which marked a previous level of dip-buying efforts. On the other hand, Treasury yields provided a mixed view, with the US 10-year yields hitting a new one-month low. The longer-term downward trendline resistance at the 4,100 level remains in focus for the S&P 500, with an indicator of market breadth (% of S&P 500 stocks above 50-Day average) hovering near previous peaks at 90%. The near-term ascending channel pattern could suggest having the 3,820 level as lower channel support in the event of a retracement.

Asia Open

Asian stocks look set for a slight negative open, with Nikkei -0.33%, ASX -0.36% and KOSPI -0.58% at the time of writing. Record high Covid-19 cases in China was met with mitigating attempts from the People's Bank of China (PBOC) last Friday, which reduced the reserve requirement ratio for most banks by 25 basis points (bp) and is expected to inject 500 billion yuan of liquidity into the economy. But having seen similar moves twice this year, economic data continues to point to a lower-for-longer growth picture in the face of virus restrictions, ultimately leaving expectations of reopening to be the key driving force for market sentiments. Rising unrest in China in the form of protests in several cities has translated to greater reopening pressure for authorities but any indications of reopening seems unlikely to be guided in light of current record high cases. This may provide a headwind for risk sentiments to start the week, with any inaction from the authorities to budge from its Covid-19 policy potentially a catalyst for more downbeat mood.

For the Nikkei 225 index, it has been trading on a rising wedge pattern since October this year, with recent upside bringing it close to its key resistance at the 28,400 level. The slightly lower peaks on moving average convergence/divergence (MACD) on recent higher highs suggest some ebbing momentum to the upside, but this could be brought on by the lack of global risk indications from the shortened trading week. A break below the lower wedge trendline support could leave the 27,800 on watch for any formation of a higher low.

On the watchlist: Brent crude prices back to retest September low

Oil prices continue to head close to 2% lower last Friday, as Covid-19 concerns in China and split views on the Russian oil price cap left prices to hover near its September low at the US$82.50 level. A break of its US$82.50 level could mark a new 11-month low and pave the way towards the US$77.20 level next, which are levels that could trigger talks of further output cut from Organization of the Petroleum Exporting Countries Plus (OPEC+). This week will bring the OPEC+ meeting (4 December) in focus to provide greater clarity of the supply-demand oil outlook. Any indications of output talks on the table over the coming months may aid to lift sentiments for prices, but the greater driving force for prices could revolve around the Covid-19 situation in China, which may likely put a cap on upside until a clear peak in cases is seen.

Friday: DJIA +0.45%; S&P 500 -0.03%; Nasdaq -0.52%, DAX +0.01%, FTSE +0.27%