US CPI and Fed minutes brought lacklustre performance: S&P 500, China A50, Silver

Market Recap

Expectations that the Federal Reserve’s (Fed) hiking cycle may be nearing its end are well-anchored by the US Consumer Price Index (CPI) data yesterday, as Fed funds futures held firm in pricing for the final 25 basis-point increase in May from the Fed. A 0.4% month-on-month increase in core pricing pressures suggests that the fight against inflation is still far from done, but at the very least, the broader trend of moderating inflation allows the Fed to consider a rate pause with more policy flexibility to balance economic risks. Headline inflation surprised to the downside (0.1% versus 0.2% forecast), but not factoring the recent jump in oil prices could bring less significance to the data.

That said, it seems to be brewing recession fears that shook risk sentiments eventually. The Fed minutes revealed Fed staff projecting a "mild recession" starting later this year due to banking sector stress, which erodes chatters of a soft landing scenario. Thus far, the declining trend of bank deposits showed little signs of turning, which points to lingering downside risks to growth on that front.

The confluence of an impending rate pause and mounting growth risks has lifted gold prices back above its key US$2,000 mark, supported by a 0.6% decline in the US dollar. Further moderation in Treasury yields may remain a weighing factor for the dollar, with both the two-year and ten-year yields hovering below their respective 200-day moving average (MA). With recent losses, the S&P 500 remains stuck in its near-term ranging pattern, as a breakout attempt was met with strong resistance yesterday. Overall, this points to ongoing market indecision, with one to watch for a break in either way of the consolidation to signal buyers or sellers in control.

Asia Open

Asian stocks look set for a slight negative open, with Nikkei -0.13%, ASX -0.01% and KOSPI -0.26% at the time of writing (8.30am SGT). Brewing recession risks highlighted in the US may not come as positive news for Asia, which is heavily dependent on external demand for growth – more so than other regions. The Nasdaq Golden Dragon China was dragged lower by 4% overnight as well, with the underperformance in Chinese tech shares potentially setting a lacklustre backdrop for the region as well. Reported plans to lower exposure in Alibaba by Softbank may reiterate the prevailing loss of confidence in Chinese tech firms by foreign investors, giving rise to concerns that more may do the same.

Ahead, China’s trade numbers will be on watch. Exports are expected to decline 7% year-on-year from previous 6.8%, reflecting the ongoing dent in global demand. On the other hand, imports are expected to contract by 5%, lesser than the 10.2% in March. Overall, it paints a slow recovery in China’s economic conditions despite reopening, supported by recent subdued inflation and lacklustre Purchasing Managers' Index (PMI).

The China A50 has struggled to defend its 200-day MA for now, with the formation of a new lower high providing an ongoing downward bias. The 12,600-12,650 level will be on watch as potential support. Greater conviction for the bulls may have to come from a move back above its 200-day MA and a downward trendline resistance to indicate a potential reversal in sentiments.

On the watchlist: Silver bulls attempting to negate bearish shooting star candle

The rally in silver prices has been robust, with a 28% gain just over the past one month. While a bearish daily shooting star candle was formed recently on over-extended technical conditions, a confirmation close has not been presented as buyers surfaced overnight in an attempt to negate the bearish candle. On the upside, the US$2,600 level will serve as the next resistance to overcome. Greater conviction for a retracement in place may have to come from a move back below the shooting star candle, potentially supported by a bearish crossover on moving average convergence/divergence (MACD) and reversion of the Relative Strength Index (RSI) back into neutral territory.

Wednesday: DJIA -0.11%; S&P 500 -0.41%; Nasdaq -0.85%, DAX +0.31%, FTSE +0.50%