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Nasdaq 100 falls amid nickel short squeeze frenzy, Nikkei 225 may rise

Crude oil extended higher as the US and UK moved forward to ban Russian imports and Asia-Pacific equities look set to open mixed amid surging crude oil prices and lingering geopolitical risks.

Nasdaq 100, nickel, Ukraine war, crude oil, Asia-Pacific at open

The Nasdaq 100 index finished modestly lower on Wednesday amid another volatile trading session. Investors continued to monitor surging commodity prices and assessed their ramifications for the real economy. The Ukraine war and the follow-on sanctions propelled prices of a wide range of raw materials, including crude oil, European gas, wheat, gold, nickel, aluminum and copper. Many of them have seen prices hitting all-time highs. It is not only the magnitude, but more of the speed of the rally that shocked investors.

The relentless rally in commodities looks set to continue as tensions between Russia and Western powers escalate further. The US is moving forward to ban Russian energy products, and the UK will follow with oil ban as part of the latest sanctions against Russia’s invasion of Ukraine.

The London Metal Exchange (LME) halted trading in nickel contracts after prices more than doubled on Tuesday amid an unprecedented short squeeze. The exchange doesn’t expect to restart trading before March 11. It was reported that China’s leading nickel producer Tsingshan HoldingGroup has a large short position on it. The recent surge in prices may force the company to square off its exposure by buying back from an increasingly illiquid market. The resulting spike in prices is called a ‘short squeeze’, a situation under which short sellers are cornered and have to buy back in extremely unfavourable prices.

Fundamentally, the rally in nickel price was driven by low inventories and concerns about Russian supply disruptions as the Ukraine crisis deepens. Russia is one of the world’s largest producers of nickel, a metal that is used in stainless steel and electric vehicle batteries. The recent Ukraine war and the follow-on economic sanctions stoked market fear about supply shortage in Russian natural resources, pushing prices from oil to natural gas to metals higher.

Extreme volatile commodities sent shockwaves to the financial markets, stoking fears about stagflation – the combination of slow economic growth and high inflation. Some Asian plastic producers have lowered their operation capacity as their profit margins plunged due to rapidly climbing raw material prices. This may be just a snapshot of how rising oil prices can impact downstream industries. With that in mind, stock investors may stand on the sidelines assessing the impact of rising inflation and geopolitical risks on the economic recovery. European stocks have fallen into a bear market, and Asia Pacific markets may follow their route if high inflation starts to dampen consumer spending and squeeze corporate margins.

WTI Crude oil - daily

Asia-Pacific stock markets look set to open mixed on Wednesday. Futures in Japan, Australia, Taiwan, Singapore, India are in the green. Those in mainland China, Hong Kong, South Korea, Malaysia, Thailand and Indonesia are in the red.

Looking ahead, investors will be eyeing China inflation and RBA governor Philip Lowe’s speech.

Looking back to Tuesday’s close, 9 out of 11 S&P 500 sectors ended lower, with 73.9% of the index’s constituents closing in the red. Consumer staples (-2.64%), healthcare (-2.11%) and utilities (-1.63%) were among the worst performers, whereas energy (+1.39%) outperformed.

S&P 500 sector performance as of 08 March 2022

Nasdaq 100 technical analysis

The Nasdaq 100 index is trending lower within a 'Descending Channel' as highlighted on the chart below. Prices formed consecutive lower highs and lows over the past few weeks, underscoring a downward trajectory. A successful breach above the ceiling of the channel may signal a bullish trend reversal. An immediate support level can be found at 13,110 – the 200% Fibonacci extension. The MACD indicator is trending lower, suggesting that selling pressure may be dominating.

Nasdaq 100 Index – daily chart

Nikkei 225 technical analysis

The Nikkei 225 index breached below a 'Symmetrical Triangle' pattern and thus opened the door for further downside potential. Prices are testing an immediate support level of 24,725 – the 161.8% Fibonacci extension. The overall trend remains bearish biased as prices formed consecutive lower highs and lower lows. The MACD indicator is trending lower beneath the neutral midpoint, suggesting that near-term momentum remains weak.

ASX 200 index technical analysis

The ASX 200 index formed a 'Double Top' chart pattern and has since entered a technical correction. An immediate support level can be found at 6,960 – the 23.6% Fibonacci retracement. Breaching below this level may intensify near-term selling pressure and expose the next support level of 6,758. A key resistance level can be found at 7,290 – the 61.8% Fibonacci retracement and the high of the 'Double Top' chart pattern.

ASX 200 Index – daily chart

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