Federal Reserve (Fed) Chair Jerome Powell took the stage yesterday with a collection of hawkish feedback and whereas the Fed funds futures didn’t see a lot of a change by way of fee expectations, US equities appear to be taking his phrases extra significantly (DJIA -0.30%; S&P 500 -0.52%; Nasdaq -1.21%).

The Fed Chair maintained his stance that the inflation combat ‘has an extended option to go’ and that almost all central financial institution officers anticipate charges to rise additional, however however, a major diploma of data-dependence remains to be in place. That injects much less dedication and extra wait-and-see within the central financial institution’s steerage, with the Fed Chair even labelling additional hikes (50 basis-point) as ‘a fairly good guess’.

With that, the US greenback failed to maneuver larger in a single day (-0.45%) as Treasury yields pared preliminary good points to shut largely flat to barely larger. Gold costs managed to search out some dip-buying, though the formation of a brand new decrease low on the every day chart nonetheless factors in the direction of some exhaustion. With tight labour market circumstances persevering with to be highlighted by the Fed Chair as a justification for additional hawkishness, a lot focus shall be on the US jobless claims right this moment.

Following a near 10% surge for the reason that begin of the month, a minor head-and-shoulder formation appears to be in place because the index failed to beat the 1,900 stage of resistance. It might nonetheless be a consolidation section for one more leg larger, however for now, the bearish crossover on Transferring Common Convergence/Divergence (MACD) factors to some near-term exhaustion. Any breakdown of the neckline under the 1,850 stage might probably pave the way in which to the 1,810 stage subsequent, the place a confluence of assist shall be on watch to underpin the next low.

Supply: IG charts

Asia Open

Asian shares look set for a blended open, with Nikkei -0.04%, ASX -0.80% and KOSPI +0.36% on the time of writing. Regardless of the final correlation with the US, the Nikkei has confirmed some resilience this morning regardless of the downbeat handover from Wall Road. Alternatively, the ASX 200 appears on observe for its second straight day of losses, having unwound near half of its final two weeks’ good points.

Markets in Hong Kong and mainland China are closed right this moment for the Dragon Boat Competition vacation, so that gives some break for Chinese language equities from the renewed tensions within the US-China relationship. China has taken offence with the US President’s comment of President Xi as a ‘dictator’, pushing again towards the concept US-China relationship may very well be warming with Secretary of State Antony Blinken’s go to.

The day forward will carry focus to rate of interest determination from Philippines and Indonesia, with expectations for each central banks to maintain charges on maintain. The motion may very well be on the Financial institution of England (BoE) fee determination as a substitute, which is broadly anticipated to push on with additional tightening.

For the Straits Instances Index, it continues to commerce inside a symmetrical triangle sample, which denotes some market indecision. With the index heading nearer to the triangle apex, one to look at shall be a possible breakout on both sides to indicate patrons or sellers gaining better management. Any breakdown of the decrease triangle trendline might depart the March 2023 backside on watch on the 3,100 stage.

Supply: IG charts

On the watchlist: GBP/USD on maintain forward of BoE assembly

One other spherical of upside surprises in UK Might inflation has not offered the BoE any slack forward of its assembly right this moment, with the central financial institution prone to retain its hawkish tone that the tightening cycle is much from over. Preliminary response for the GBP/USD to the inflation knowledge was blended nevertheless, as a lot hawkishness has beforehand been priced whereas one other 150 bp value of tightening will include larger trade-off for development circumstances and makes a UK recession extra possible than not.

With a 25 bp hike being a completed deal on the upcoming assembly, together with expectations for a terminal fee at 6%, the pair appears to be largely on maintain for additional validation from the central financial institution. The upper highs and better lows since September final 12 months proceed to place an upward development in place, with a collection of assist traces (200-day MA, downward trendline assist, Ichimoku) on watch to offer the next low within the occasion of a retracement. Any upside could depart resistance on the 1.300 stage.

Supply: IG charts

Wednesday: DJIA -0.30%; S&P 500 -0.52%; Nasdaq -1.21%, DAX -0.55%, FTSE -0.13%

Article written by IG Strategist Jun Rong Yeap