Asian Open: Inflation Fears Weigh on Tech Stocks

Inflationary concerns weighed on Wall Street, as Iron Ore hit record highs yesterday and lumber prices having now doubled since March alone.

Charts (1)

Asian Futures:

  • Australia's ASX 200 futures are down -52 points (-0.73%), the cash market is currently estimated to open at 7,120.80
  • Japan's Nikkei 225 futures are down -300 points (-1.01%), the cash market is currently estimated to open at 29,218.34
  • Hong Kong's Hang Seng futures are down -183 points (-0.64%), the cash market is currently estimated to open at 28,412.66

UK and Europe:

  • UK's FTSE 100 index fell -6.03 points (-0.08%) to close at 7,123.68
  • Europe's  Euro STOXX 50  index fell -10.9 points (-0.27%) to close at 4,023.35
  • Germany's DAX  index fell 0.76 points (0%) to close at 15,400.41
  • France's CAC 40 index rose 0.48 points (0.01%) to close at 6,385.99

Monday US Close:

  • The Dow Jones Industrial fell -34.94 points (-0.1%) to close at 34,742.82
  • The S&P 500 index fell -44.17 points (-1.05%) to close at 4,188.43
  • The Nasdaq 100 index fell -360.547 points (-2.63%) to close at 13,359.08


Ominous Signs on the Nasdaq 100

As per usual, it was technology and growth stocks which were the worst hit under the ‘inflationary fears’ scenario. The Nasdaq 100 was down -2.6% and sent several worrying signals to bulls. Closing beneath its 50-day eMA, yesterday’s bearish engulfing candle had no upper or lower wick (meaning it opened at the high and closed at the low of the day) and formed part of a three-bar bearish reversal formation (Evening Star Reversal). Given it now forms part of a lower high, the bias remains bearish beneath 13,815.

The Russell 2000 growth index fell -3.46% and the S&P 500 fell from its record high and closed on its 10-day eMA. The Dow Jones hit (and traded slightly beyond) our 35,000 target before giving back gains to close slightly lower, forming a bearish pinbar and warning of exhaustion at its record high.

European equities were mostly flat, with the Euro STOXX 600 index rising just 0.03%. The DAX was also flat yet held above Friday’s low, so the bullish bias outlined in yesterday’s video remains intact.


With futures all pointing lower we’ll likely see the ASX 200 give back some of yesterday’s gains at the open, after closing just shy of its record high in a month which is historically bearish for the index. But the question is now whether this is the top for the month? It’s not impossible, if the index gets swept away with global sentiment. Ultimately, any rally towards 7200 runs the risk of selling off due to it being such a milestone level but, considering the fact that May more often than not produces negative returns, then bears would be wise to keep an eye on any topping signals. Whilst the risks are for a retest of 7100 over the near-term, we’d want to see a break beneath it before becoming more confident the index has topped out for the month. Conversely, a break above 7200 assumes bullish continuation.


ASX 200 Market Internals:


ASX 200: 7172.8 (1.30%), 10 May 2021

  • Materials (3.35%) was the strongest sector and Utilities (-0.1%) was the weakest
  • 2 out of the 11 sectors outperformed the index
  • 10 out of the 11 sectors closed higher
  • 15 hit a new 52-week high, 3 hit a new 52-week low
  • 71% of stocks closed above their 200-day average
  • 51% of stocks closed above their 20-day average

Outperformers

  • + 10.59%   -  Pilbara Minerals Ltd  (PLS.AX) 
  • + 9.04%   -  Omni Bridgeway Ltd  (OBL.AX) 
  • + 7.92%   -  Fortescue Metals Group Ltd  (FMG.AX) 

Underperformers:

  • -13.11%   -  A2 Milk Company Ltd  (A2M.AX) 
  • -8.92%   -  Incitec Pivot Ltd  (IPL.AX) 
  • -6.13%   -  Nuix Ltd  (NXL.AX) 

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Forex: GBP Rallies, yen pairs littered with reversal candles

The British pound was the strongest major overnight, thanks to a weaker US dollar, upgraded economic forecasts and relief that the SNP (Scottish National Party) didn’t win an outright majority at the weekend elections.

  • GBP/JPY closed to a three-year high, whilst GBP/CHF reaffirmed support at 1.2576 and is now considering a break above 1.2736 resistance. EUR/GBP suffered its single-heaviest day loss since October, and GBP/USD close firmly above 1.4000 to its highest level in nearly three-months.
  • The US dollar index (DXY) etched out a fresh low before finding support just above 90.00. Technically it could be due a bounce (however minor) but 90 remains the pivotal level over the coming session/s. Fundamentally there’s little reason to be bullish on the dollar but, technically at least, things are looking stretched down at those lows.
  • AUD/USD failed to hold onto earlier gains and formed a bearish pinbar which closed back beneath 0.7850 resistance. 0.7800 is the next level for bulls to defend over the near-term.
  • AUD/NZD saw another failed attempt to break above 1.0800. In yesterday’s report we suggested a daily close above this key level could hint at a bullish breakout, yet the bearish pinbar which closed beneath this key level keeps a break of its bullish trendline (from December’s low) a real possibility.
  • The Japanese yen caught a bid during a risk-off session on Wall Street, seeing GBP/JPY give bac earlier gains and form a bearish pinbar.

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Commodities: Key US Oil Pipeline to Remain Closed for Now

The Colonial fuel pipeline remains closed and is expected to do so for a few more days, which is already seeing gasoline prices rise across southeast of the US. DarkSide, the hackers allegedly behind the ransomware attack which led to the pipelines closure say they were after cash and not chaos. Oops… Oil prices posted modest gains earlier in the session before closing effectively flat for the day. WTI rose 0.3% to 64.92 and brent futures were down -0.04% to 68.25.

Supply concerns and inflationary pressures sent Iron Ore prices to record highs yesterday, with early trade on the Dalian Commodity Exchange seeing the mineral rock hit 10% limit up. Exchanges are expected to raise trading limits and margins for the June, September, October, December and January contracts from today to try and cool prices.

Gold prices remained anchored to their 3-moth highs amid the stock sell-off due to inflationary fears. This only adds to the anticipation for Wednesday’s CPI data from the US.


Up Next (Times in AEST)


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