Weak start to the new year ahead of Fed minutes: Brent crude, Straits Times Index, Gold

Market Recap

The start of January tends to be positive seasonally for Wall Street but that did not work out well overnight, with major US indices heading sharply lower at the open. Apple (-3.7%) and Tesla (-12.2%) were viewed as the main drivers for the weak start. Once seen as the more resilient performers among the growth counters, the past few months have seen both powerhouses caving in to rising growth fears as well, with their high weightage in major indexes translating to pressure on any upside. Reports of Apple preparing for lower production with suppliers and a miss in Tesla’s fourth-quarter deliveries against market expectations have prompted a revisit to their relatively higher valuation. Finding the trough in corporate earnings may be key in 2023, but for now, that does not seem to be materialising anytime soon. The energy sector (-3.6%) provided a drag lower for the equities market as well, tracking an equivalent 4% plunge in oil prices. The US dollar index (+1.1%) also found renewed strength ahead of the Federal Open Market Committee (FOMC) minutes release today, seemingly pricing for a hawkish takeaway from Federal Reserve (Fed) members. The pocket of optimism is that major US indices are still clinging onto their respective support levels, with the S&P 500 defending the 3,800 level and the Nasdaq above its 10,800 level.

Having traded on near-term higher highs and higher lows on the four-hour chart, the overnight sell-off in Brent crude prices seems to be attempting for a break below a support confluence zone at the US$82.50 level, where a near-term upward trendline stands alongside a horizontal support line. Thus far, the start of the new year has left sentiments highly sensitive to headlines of a tougher global growth outlook, which kept oil prices under pressure. Warning signs of global recession, China’s lacklustre recovery with surging Covid-19 cases, renewed strength in the US dollar and dampened risk sentiments are all catalysts keeping oil prices in check overnight.

Asia Open

Asian stocks look set for a mixed open, with Nikkei -1.52%, ASX +1.06% and KOSPI +0.24% at the time of writing. Coming back online after its holiday break, the Nikkei is largely catching up to earlier global losses, accounting for the divergence in performance. Despite China’s Caixin manufacturing Purchasing Managers' Index (PMI) trending in contractionary territory for the fifth straight month in December, Chinese indices managed to find their way higher yesterday, with the Hang Seng Index rebounding off its key 200-day moving average (MA) upon a retest. Holding above this key MA line will keep its overall upward bias intact, with the MA line closely looked upon as an indication of longer-term trend.

For the Straits Times Index, it has largely been trading in a ranging pattern over the past 1.5 month, which could amplify the strength of any break on either sides, with the prolonged build-up in both buyers and sellers within the range. A retest of the lower consolidation base yesterday was met with the formation of a bullish dragonfly doji, suggesting an attempt by dip buyers to hold the level. The 3,220 level will remain on watch as key support, with any downward break potentially prompting a move towards the 3,170 level next.

On the watchlist: Gold prices back to retest upper wedge trendline ahead of FOMC minutes

Gold prices have pushed to its six-month high this week, with an attempt to stay resilient despite renewed strength in the US dollar overnight. Lower Treasury yields could be providing some cushion against the stronger US dollar, driving gold prices to retest a confluence of resistance at the US$1,844 level. This is where an upper trendline of a rising wedge pattern coincides with a key 50% Fibonacci retracement level. The defensive positioning against rising growth risks could be at play here, with the near-term higher highs and higher lows pointing to an overall upward bias for now. While the US$1,844 level will serve as resistance to overcome, any retracement could leave the US$1,800 level on watch as key support.

Tuesday: DJIA -0.03%; S&P 500 -0.40%; Nasdaq -0.76%, DAX +0.80%, FTSE +1.37%