Sentiments on hold ahead of key risk events this week: Nasdaq 100, Nikkei 225, Brent crude

Market Recap

Major US indices ended last week with further upside, (DJIA +0.08%; S&P 500 +0.25%; Nasdaq +0.95%), but a sharp paring of gains at the last hour may suggest some caution kicking in ahead of several key risk events (central bank meetings, PMI data, US job report) this week. After ticking 3% lower since the start of the year, the US dollar index has also stabilised above a near-term support at its 101.00 level, with its measured moves within a tight range pointing to some wait-and-see ahead of the upcoming FOMC meeting. Economic data last week showed US core PCE price index coming in line with expectations at 4.4% year-on-year, further moderating from previous 4.7%. The data continues to anchor market expectations of terminal rate outlook at the 4.75%-5% range, which is less hawkish than what Fed policymakers have been guiding for. Still above-target inflation and easing financial conditions over the past months may refrain the Fed from feeding markets with any pivot hopes prematurely but equity bulls may attempt to ride on any signs of a more data-dependent stance to continue recent bullish momentum.

The past week has also seen mega cap tech counters taking leadership for markets’ bullish moves, and the onus will fall on several big tech names this week (Advanced Micro Devices, Meta Platforms, Alphabet, Apple and Amazon) to support further upside. Thus far, the Nasdaq 100 index has broken above a key downward trendline resistance, suggesting bulls in control. A near-term resistance at the 12,200 level lies ahead and any break above this level could pave the way towards the 13,000 level, where a Fibonacci confluence zone resides.

Asia Open

Asian stocks look set for a lower open, with Nikkei -0.04%, ASX -0.16% and KOSPI -0.83% at the time of writing, as the last-hour de-risking in US indices on Friday and muted moves in US equity futures this morning suggests some caution ahead of several key risk events this week. The mainland China markets will reopen today after its Lunar New Year holidays, with positive catch-up performance likely on the table and an anticipated return to bull market for the CSI 300 index. Last week, the Hang Seng Index has pushed to its 10-month high, posting its six consecutive weeks of gains. The economic calendar in the region is largely quiet today, but focus will be on China’s NBS PMI readings tomorrow. Expectations for its manufacturing PMI are for a smaller contraction to 49.7 from previous 47.0, but with market technicals in overbought territory for now, any lower-than-expected read may be tapped on for some profit-taking.

For the Nikkei 225 index, recent upside has brought it to retest a key resistance at the 27,400 level currently, which also marks the completion of a previous double-bottom pattern. Any move higher could pave the way towards the 28,400 level next, where a key 61.8% Fibonacci retracement level stands. The index is currently trading above both its 100-day and 200-day moving average (MA).

On the watchlist: Brent crude prices hovering at 100-day MA ahead of OPEC+ meeting

Brent crude prices have been able to form a higher low and higher high since December last year, taking its cue from the weaker US dollar, China’s reopening narrative and an improved risk environment to gain some traction. That said, recent upside has stalled just below its 100-day MA, with its near-term ranging pattern pointing to ongoing wait-and-see ahead of several key risk events this week. Expectations for the upcoming OPEC+ meeting are for a no-change to current policy, in light of higher oil prices in recent months and an improving outlook on China’s demand. That may leave sentiments to be more sensitive to a series of central bank meetings and economic data to drive moves. Any break above its 100-day MA could further provide conviction of bulls in control and places the next key test of resistance at the US$92.87 level on watch. This level is where a key 61.8% Fibonacci retracement level resides.

Friday: DJIA +0.08%; S&P 500 +0.25%; Nasdaq +0.95%, DAX +0.11%, FTSE +0.05%