Softer rate bets drove big tech outperformance overnight: GBP/EUR, Straits Times Index, Gold

Market Recap

Softer rate hike bets in the aftermath of the recent Federal Open Market Committee (FOMC) meeting have sent big tech shares surging overnight, with the switch from value to growth displayed in the sharp performance parity between the DJIA (-0.11%) and the Nasdaq (+3.3%). Treasury yields continue to head lower but managed to regain some footing by session close, with the US 10-year yields successfully defending its 200-day moving average (MA) for now. The US dollar index (+0.84%) managed to pare some previous losses but resistance still remain in the way at the 101.30 level.

After-market moves saw some dampening of overnight optimism with the earnings releases from Apple, Amazon and Alphabet. Pockets of weakness have surfaced in both Amazon and Apple’s outlook, with Amazon’s guidance for quarter one (Q1) operating income below consensus ($0-$4 billion versus $4.04 billion expected) while Apple forecasts another revenue decline after latest top and bottom-line miss. Alphabet also missed on both top and bottom-line. With the more resilient big tech companies caving in to economic pressures, brewing growth risks will continue to be pitted against hopes of a ‘dovish pivot’, with the latter still seemingly in wider control.

The conclusion of the European Central Bank (ECB) meeting brought about an expected 50 basis-point hike, but hawkish reaffirmation in the press conference seems to pave the way for more rate hikes to come. Unlike the Federal Reserve (Fed), the ECB pushed back against dovish expectations by saying that the ‘disinflationary process is not already at play’. The Bank of England (BoE) hiked by 50 basis-point as well, but with the central bank bringing attention to the largely unfelt impact of past rate hikes, an impending end to the hiking cycle seems to be the takeaway. The divergence in policy stance has been reflected in the GBP/EUR, which is retesting the lower trendline of a falling wedge pattern. A bearish crossover is displayed on the moving average convergence/divergence (MACD). A close below the trendline support may pave the way to retest its September 2022 bottom at around the 1.107 level.

Asia Open

Asian stocks look set for a positive open, with Nikkei +0.51%, ASX +0.38% and KOSPI +0.01% at the time of writing. Chinese equities have been seeing some weakness lately, with the Hang Seng Index and CSI 300 failing to find much upside despite the improved risk environment. The Nasdaq Golden Dragon China Index also closed in the red overnight (-1.3%). The day ahead will leave China’s Caixin purchasing managers index (PMI) figures in focus, but with recent outperformance in earlier official PMI readings failing to prompt a sustained upmove in Chinese indices, it bodes the question of whether we can see much of a positive reaction to any upcoming outperformance. Technicals in overbought region seems to be in the way, along with some moderation in upward momentum potentially triggering some near term profit-taking.

Closer to home, the Singapore Index continues to hover at the 3,370 level of support. Banks, which took up close to 45% of the index’s overall weightage, have reacted to softer rate hike bets with some downward pressure yesterday. However, this is somewhat supported by renewed traction in the REITs sector, which viewed the impending end to the rate hiking cycle positively. For now, the overall upward bias for the index may seem to remain but any failure for the 76.4% Fibonacci retracement level to hold may prompt a near term retest of the 3,320 level.

On the watchlist: Gold prices finding sellers at US$1,960 in aftermath of Fed meeting

Despite the dovish tint provided at the recent FOMC meeting, gains in gold prices have been pared back after a retest of the US$1,960 level. This level is where a key 76.4% Fibonacci retracement level resides, when drawn from its March 2022 peak to November 2022 bottom. Some profit-taking could seem to be in place after prices rose more than 20% over the past three months. However, a greater conviction for sellers could be a break below the US$1,895 level, where dip-buyers have previously stepped in to form a bullish pin bar. Any close below the US$1,895 level could be on watch to pave the way towards the US$1,840 level next.

Thursday: DJIA -0.11%; S&P 500 +1.47%; Nasdaq +3.25%, DAX +2.16%, FTSE +0.76%