Will the Fed Deliver Surprises?


S&P 500, HANG SENG, ASX 200, ASIA-PACIFIC MARKET OUTLOOK:

  • Markets are holding their breath for the FOMC meeting, with volatility continuing to fall
  • Dow Jones, S&P 500 and Nasdaq 100 indexes closed-0.39%, -0.16% and +0.53% respectively
  • Asia-Pacific markets may trade with a cautious tone until the FOMC paints a clearer picture

Yields, FOMC, Volatility, Asia-Pacific Stocks Outlook:

US equities finished modestly lower following a disappointing February retails sales figure, which came in at -3.0% MoM compared to a -0.5% forecast. A poorer-than-expected reading was partly attributed to extreme cold weather last month, while January’s reading was revised up to 7.6% from 5.3%. Looking ahead, the impending US$ 1.9 trillion Covid relief bill is likely to revitalize consumer spending in the months to come.

Markets are holding their breath for today’s FOMC meeting and press conference for clues about the central bank’s monetary policy guidance. Although many expect the Fed to keep the policy rate and asset purchasing program unchanged for the time being, a clear improvement in job market conditions and economic outlook may lead to changes in the dot plot to reflect a faster pace of recovery. In the December FOMC meeting, the dot plot suggested no interest rate hikes in 2023 (chart below). Should there be any backward shift in the median plot for the first rate hike, it would likely weigh on risk assets and lead to a strengthening in the US Dollar.

The VIX volatilityindex edged lower to 19.8 – the lowest level seen in more than a year. This renders equities susceptible to a sudden surge in volatility should the FOMC meeting deliver surprises.

Federal Reserve Dot Plot – Dec 2020

Source: Federalreserve.gov

Asia-Pacific markets look set to follow a cautious US lead and open mixed. Futures in Japan, Australia, Thailand, Singapore and Indonesia are pointing to a lower start, whereas those in mainland China, Hong Kong, South Korea, Taiwan and Malaysia are moving mildly higher.

Australia’s ASX 200 indextraded -0.35% at open, dragged by materials (-1.23%), energy (-0.92%) and information technology (-0.46%) sectors. Defensive-oriented utilities (+0.73%) and communication services (+0.25%) registered small gains, suggesting that sentiment was tilted to the cautious side.

Hong Kong’s Hang Seng Index (HSI) returned to above the 29,000 mark as mainland stock markets showed signs of stabilizing. Exchange data shows that southbound trading registered HK$ 5.267 billion of net outflows on March 16th, the highest amount seen since March 3rd. Southbound trades contribute to nearly 30% of the entire turnover in the Hong Kong stock exchange, therefore it can be viewed as a reliable sentiment barometer. Increased capital inflows via the stock connections suggests that risk appetite for Hong Kong stocks have improved among mainland investors.

S&P 500, Hang Seng, ASX 200 Outlook: Will the Fed Deliver Surprises?

Source: Bloomberg, DailyFX

On the macro-front, the Eurozone and Canadian core inflation rates headline the economic docket alongside US housing starts and EIA crude inventory data. Find out more from DailyFX calendar.

Looking back to Tuesday, 7 out of 11 S&P 500 sectors ended lower, with 69.7% of the index’s constituents closing in the red. Energy (-2.83%), industrials (-1.44%) and financials (-1.13%) were among the worst performing sectors, while communication services (+0.93%) and information technology (+0.79%) outperformed.

S&P 500 Sector Performance 16-03-2021

S&P 500, Hang Seng, ASX 200 Outlook: Will the Fed Deliver Surprises?

Source: Bloomberg, DailyFX

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S&P 500 Index Technical Analysis:

The S&P 500 index has likely resumed its upward trajectory after briefly dipping below the “Ascending Channel” in early March. The index breached above the 20- and 50-day Simple Moving Average (SMA) line, suggesting that near-term trend has likely flipped upwards. An immediate resistance level can be found at 3,995 (127.2% Fibonacci extension) whereas an immediate support level can be found at 3,893 (100% Fibonacci extension). The MACD indicator has formed a bullish crossover, underpinning upward momentum.

S&P 500 IndexDaily Chart

S&P 500, Hang Seng, ASX 200 Outlook: Will the Fed Deliver Surprises?

ASX 200 Index Technical Analysis:

The ASX 200 index remains in an “Ascending Channel” but upward momentum appears to be fading as suggested by the downward-sloped MACD indicator. The overall trend remains bullish as suggested by upward-sloped 50-day SMA line, but a minor correction seems to be underway. Holding above 6,730 – the 161.8% Fibonacci extension level – may pave the way for further upside potential towards 6,935 – the 200% Fibonacci extension.

ASX 200 Index Daily Chart

S&P 500, Hang Seng, ASX 200 Outlook: Will the Fed Deliver Surprises?

Hang Seng Index Technical Analysis:

The Hang Seng Index hit a strong resistance level at 31,044 (76.4% Fibonacci retracement level) in mid-February and has since entered a consolidative period. Prices appear to be trending lower within a “Descending Channel” recently as highlighted in the chart below, and a successful attempt to breach the ceiling would probably intensify buying pressure and expose the next resistance level of 29,500 (38.2% Fibonacci extension). The MACD indicator is about to form a bullish crossover, suggesting that near-term momentum may have turned upwards.

Hang Seng Index Daily Chart

S&P 500, Hang Seng, ASX 200 Outlook: Will the Fed Deliver Surprises?

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— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter





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