Indices on a positive footing to start the week: Nasdaq 100, China A50, AUD/USD

Market Recap

Coming after four straight days of decline, retail resilience became the catalyst that propelled US equity markets higher (DJIA +2.15%; S&P 500 +1.92%; Nasdaq +1.79%) on last Friday. The US retail sales for June came in higher-than-expected at a 1% increase month-on-month(MoM) (0.8% expected), while consumer sentiment also edged slightly above expectations to 51.1 (49.9 expected). The narrative of stronger-than-expected consumer spending translating into more aggressive Fed tightening is taken off by market participants for now, as a peaking inflation outlook remains the key driving force with ongoing moderation in commodities prices, and some relief found in a further fall in consumer inflation expectations. That could take some pressure off the Fed’s tightening process, with consumers’ inflation expectations generally well-anchored. As a result, the probability for a 100 basis-point (bp) hike in the July Federal Open Market Committee (FOMC) meeting was pared down to 39% from the previous 54% after the release of the US consumer price index (CPI) data. Earnings release from Citigroup and Wells Fargo also saw both share prices jumped 13% and 6% respectively, driving the outperformance in the financial sector.

The improved risk sentiments seem set to continue into the new trading week, with the ongoing US earnings season potentially taking greater control for market moves ahead. Other than a continuation of major US banks’ earnings, results from Netflix and Tesla will be in focus, which will drive sentiments around growth stocks. Netflix’s results remain on close watch, having underperformed in subscriber numbers over the last two quarters. Both instances have seen its share price plummeting more than 20% in a single day.

For the US Tech 100, the index has been trading within a near-term ascending triangle pattern over the past month, with last week’s move forming a new higher low. With that, the 12,200 level will be on watch for a retest next, with any subsequent break above the ascending triangle pattern forming a new higher high and validating the near-term upward bias.

Asia Open

Asian stocks look set for a positive open, with ASX +0.59% and KOSPI +1.16% at the time of writing. The Japan market is closed for a holiday. Markets could tap on some relief with the bullish moves in Wall Street to end last week, although Covid-19 risks remain on watch in the region with new local cases in China (+691 on Saturday vs +547 on Friday) rising over the weekend. Authorities in Shanghai are also trying to contain new cases outside quarantine areas and has warned that the situation in the city remains severe. The lingering uncertainty around increased lockdown risks has once again driven risk sentiments to take on some caution in Chinese equities. While the Nasdaq Golden Dragon China Index attempts to recover alongside the positive mood in Wall Street on Friday, it remains in the red by 0.8%.

A previous break of a downward trendline for the China A50 index has brought a retest of the key 14,000 level. This is where a key 38.2% Fibonacci retracement stands in place as a level of support. Sentiments thus far have remained fragile, with any break below this level potentially drawing further downside to the 13,314 level next.

On the watchlist: AUD/USD on watch for improved risk sentiments

The risk-sensitive Australian dollar has previously come under some pressure, with headwinds from falling iron ore prices in line with recession fears, coupled with a larger-than-expected slowdown for China’s quarter two (Q2) gross domestic product (GDP). That said, the improved risk sentiments towards the end of last week has provided a lift for the AUD/USD off a bottom trendline of a descending channel pattern. On the weekly chart, the formation of a bullish hammer candlestick also suggests the presence of dip buyers, with one to watch for any follow-through this week. To drive a more sustaining upside, the currency pair may have to overcome the key 0.684 level ahead, where the upper channel trendline resistance stands in place with a previous support-turned-resistance level.

Friday: DJIA +2.15%; S&P 500 +1.92%; Nasdaq +1.79%, DAX +2.76%, FTSE +1.69%