US indices attempt to stabilise after recent retracement: VIX, Straits Times Index, Silver

Market Recap

US equity markets continue to drift slightly lower overnight, with the S&P 500 and Nasdaq delivering its fifth consecutive day of decline while the DJIA eked out a flat close. The somewhat lesser scale of decline as compared to previous trading days could suggest an attempt for markets to stabilise for now, coming after a 4% retracement over the past week. More measured moves towards the end of the week seems likely, with some wait-and-see as the key US Consumer Price Index (CPI) data and Federal Open Market Committee (FOMC) meeting loom next week.

The economic calendar overnight remains quiet, other than a higher-than-expected read for US third-quarter productivity (0.8% quarter-on-quarter versus 0.6% forecast) while unit labour costs came in below consensus (2.4% quarter-on-quarter versus 3.1% forecast). That prompted a slight upside reaction in US indices but volatility was quick to ensue. Still-elevated labour costs remain underpinned by a tight labour market, supported by below-trend supply of labour shown from recent US job data. Treasury yields largely retain its broad-based downward moves as a follow-through of recent growth concerns, while US dollar ticked slightly lower.

After retesting the 22.64 level in line with its April and August bottoms, the VIX index has rebounded close to 9% thus far, which suggests increased hedging activities ahead of several key risk events next week. Further upside may leave its 100-day moving average (MA) on watch, with any wild swings largely to be dictated next week.

Asia Open

Asian stocks look set for a downbeat open, with Nikkei -0.79%, ASX -0.49% and KOSPI -0.18% at the time of writing. Chinese equities have seen some profit-taking after its recent optimism, with the Hang Seng Index closing more than 3% lower yesterday. This comes after the index nears its 200-day MA, which is often looked upon as an indication of a longer-term trend to the upside. The economic calendar is quiet in the region as well, with an upward revision in Japan’s quarter three (Q3) 2022 gross domestic product (GDP) data this morning while Australia’s trade balance data revealed a slight 1% contraction in both imports and exports from the previous month. Further drift lower in indices remain the likely scenario, as an overall cautious risk environment prompts some de-risking.

For the Straits Times Index (STI), the index is back to retest its mid-November low at the 3,230 level, where its 200-day MA resides along with a 50% Fibonacci retracement level. Defending this level may be key as any downward break may also validate a recent double-top formation and prompts further downside.

On the watchlist: Silver prices seeking to defend its resistance-turned-support level

Silver prices have been tracking US dollar moves very closely and some renewed US dollar strength on the back of a more cautious risk environment have translated to a pullback in silver prices this week. Mixed signals could be presented in the near term, with moving average convergence/divergence (MACD) running the risks of forming a bearish divergence but the display of higher highs and higher lows for silver prices since mid-October underpinned a prevailing upward trend. Buyers will seek to defend a resistance-turned-support at the US$22.15 level as US dollar hit a key 105.00 level. That may put sentiments on some wait-and-see in the lead-up to the US CPI next week to dictate greater moves ahead.

Wednesday: DJIA +0.00%; S&P 500 -0.19%; Nasdaq -0.51%, DAX -0.57%, FTSE -0.43%