Asia Day Ahead: STI faced lack of institutional interest, Brent crude struggles to retain upside

Market Recap

Wall Street ended mostly flat on Friday (DJIA -0.31%; S&P 500 +0.08%; Nasdaq +0.02%), as a mixed showing in US banks’ results pushed for some profit-taking in financials, given the stellar risk-on rally since October last year. The banks generally outperformed on revenue, but earnings are met with some hit-and-miss on higher expenses. Notably, JPMorgan continued to pull ahead from the other banks with yet another quarter of record net interest income, and a higher-than-expected guidance for 2024 indicates that the momentum will continue.

Ahead, it will be a light earnings week, with notable results from Morgan Stanley, Goldman Sachs and Charles Schwab, before the busy schedule for big tech comes up next week (Microsoft, Netflix, Tesla). Takeaways from the series of bank results on Friday suggest that the wealth management side of the banks’ businesses have been resilient, which could be mirrored into the banks’ results this week.

Expectations are also in place that better times are ahead for investment banking activities, with early signs of revival in deal-making since 4Q 2023. With that, market participants will want to see the positive impact being reflected in the banks’ results, or at least a positive guidance from the banks as a vote of confidence that the worst is over on the investment banking front.

On the macro front, lower-than-expected US December producer prices provided further support for market dovish expectations, with broad views firmly anchored for a March rate cut from the Federal Reserve (Fed). With that, gold prices found the catalyst for a bounce on Friday, after retesting a support confluence at the S$2,018 level, where the lower edge of its daily Ichimoku cloud zone stands. Buyers may attempt to retest the US$2,074 level of resistance once more, with a successful upward break potentially leaving the US$2,146 level in sight next.

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.64%, ASX +0.02% and KOSPI -0.03% at the time of writing. The Nikkei index looks set to extend its gains for the eighth straight trading day, with increased volume supporting the strength of the prevailing upward trend. On the other hand, divergence continues to be seen in Chinese equities, with the Nasdaq Golden Dragon China Index underwater by 1.5% last Friday.

Over the weekend, chatters have been on the Taiwan’s election outcome on diplomatic ties, with an extended win by the US-friendly Lai Ching-te from the ruling Democratic Progressive Party (DPP) suggesting that relationship with China may remain tense but not too overblown. One may note that his winning percentage has been the lowest since 2000 and the party has lost its parliamentary majority, which means that any intent to push for changes may be met with resistance, and this means for economic policies as well. US President Biden was also quick to jump in after the election to smooth any resulting tensions, so in a way, US-China geopolitical ties will remain stretched but the risks of escalation may still be limited for now.

On another front, the Straits Times Index continue to face a crucial test of resistance at the 3,200 level, with an attempt to overcome it this morning failing to find any success thus far. This is where its 200-day moving average (MA) stands, with one to watch for a close above the MA-line for conviction of further upside. Broadly, the index remains in a long-ranging pattern since March 2021, which may potentially drag for longer given the lack of interest in institutional investors. A look at the Singapore Exchange (SGX) fund flow data has revealed its tenth consecutive week of institutional fund outflows.

On the watchlist: Brent crude struggled to retain upside on Friday

An attempt to retest its December 2023 high last Friday was met with the formation of a bearish pin bar on the daily chart for Brent crude prices, as prices failed to retain earlier gains into the close. This comes as prices edged towards the lower edge of the daily Ichimoku cloud resistance zone, while its daily relative strength index (RSI) struggled to overcome the key 50 level for now. A move above the US$82.50 level may be needed to provide greater conviction of buyers taking control, which will mark an upward break of its Ichimoku cloud resistance, along with its 200-day MA.

Friday: DJIA -0.31%; S&P 500 +0.08%; Nasdaq +0.02%, DAX +0.95%, FTSE +0.64%