Attempt for a breather after recent sell-off in US indices: Brent crude, China A50, Natural gas

Market Recap

Major US indices managed to break their five-day losing streak yesterday, but for now, it could still seem to be more of an attempt to stabilise after its recent sell-off rather than a clear recovery in risk sentiments. Treasury yields were higher, somewhat taking a breather from recent recession talks, but the trend remains tilted to the downside with the series of lower highs and lower lows since November. The US dollar pushed back below the key 105.00 level after briefly hanging above it at the start of the week. The economic calendar saw higher-than-expected US jobless claims, which are looked upon for the overnight recovery as being supportive of slower rate hikes. That said, one may argue that reaction to the claims data could eventually be short-lived, considering that the US Consumer Price Index (CPI) data and the Federal Open Market Committee (FOMC) meeting outcome next week could be more significant drivers in determining market trends ahead. Nevertheless, rate-sensitive sectors drove the outperformance overnight on easing rate hike bets.

Despite some brewing optimism around China’s potential reopening, oil prices have not been able to move higher, as overriding concerns of a global cyclical downturn ahead left investors shunning. Reaction to the Russian price cap has been largely muted thus far, with the lack of clarity of its impact on dampening Russia’s supplies driving some unwinding of previous bullish bets. Overnight headlines of the Keystone pipeline closure have also failed to prompt a sustained upside move, reflecting expectations that short-term outages may be short-lived. That kept Brent crude prices at its year-to-date low, which could soon trigger talks of when Organization of the Petroleum Exporting Countries Plus (OPEC+) may jump in with more production cuts. But for now, while there could be some attempt to tap on oversold technical conditions for some recovery after its heavy sell-off, a break below its key Fibonacci support at US$82.50 still provides an overall bearish bias.

Asia Open

Asian stocks look set for a positive open, with Nikkei +0.96%, ASX +0.22% and KOSPI +0.18% at the time of writing. The attempt for some breather to end the week could be at play, but mostly wait-and-see sentiments could prevail. The lead-up to several key risk events next week may refrain market participants from taking on too much exposure. Nevertheless, constant stream of headlines pointing towards economic reopening in China and Hong Kong drove inflows back into Chinese equities, with the Nasdaq Golden Dragon China Index closing higher by 5.6% overnight.

The day ahead will leave China’s inflation data in focus. Downside risks to China’s growth picture in the near term suggest that consumer pricing pressures will likely stay muted around 2% while Producer Price Index (PPI) could contract further, pointing to an overall lower-for-longer growth outlook. That said, current market focus on reopening instead of backward-looking data could lead to shrugging off for lower-than-expected readings.

After some profit-taking upon hitting its 200-day moving average (MA), the Hang Seng Index seems to be on its way to retest the line once more, leaving the 19,760 level on watch. Validation from the broader risk environment will be needed as well, considering that oversold technical conditions leave it susceptible to greater profit-taking pressure. Any retracement will leave the Fibonacci confluence zone at the 18,550 level in focus as potential support.

On the watchlist: Natural gas prices attempting to bounce from previous bottoms

After retracing 34% over the past two weeks, Natural Gas prices are attempting for a bounce after hitting the US$5.284 level, where its previous bottoms in July and October 2022 resided. The current cold spell in Europe has driven expectations of increased gas demand through January, which could also drain the previous excess build in European gas storage facilities. Greater conviction may be a close above the US$6 level, considering that yesterday’s attempt to move above the US$6-mark was met with some bearish pressure. Key support will remain at the US$5.284 level and failure to hold could leave the US$4.593 level on watch next.

Thursday: DJIA +0.55%; S&P 500 +0.75%; Nasdaq +1.13%, DAX +0.02%, FTSE -0.23%