Stimulus and Pandemic in Focus


S&P 500, NIKKEI 225, ASIA-PACIFIC MARKET OUTLOOK:

  • S&P 500 index futures traded almost 1% higher, setting a positive tone for the week ahead
  • A Democratic-led fiscal stimulus plan will be in focus as coronavirus cases continue to climb
  • Risk-linked Australian Dollar, New Zealand Dollar and Chinese Yuan climbed, the US Dollar fell

S&P 500 Index Outlook:

US stocks registered impressive gains last week, with the Dow Jones, the S&P 500 and Nasdaq index rising 6.87%, 7.32% and 9.01% respectively. Risk-linked currencies and risk assets also pocketed decent gains as the US presidential election drew to a close with Biden’s victory in a breath-holding race with Donald Trump. Near-term risk remains, however, on domestic tensions in the wake of the election result and rising coronavirus counts around the globe.

Biden’s presidency may bring a fresh chapter to US foreign policy, which is important to the world and of particular interest to the export-oriented economies including China, Mexico, the EU and Japan. Tariff-led trade negotiations and retaliations may be replaced by a more diplomatic and strategic approach to deal with US trade deficits. The White House may also reconsider joining the Trans-Pacific Partnership (TPP) to rebalance the power in the Asia-Pacific region. Green energy will likely be favored over fossil fuels in the next four years. Before we reach there, however, an imminent focus will be a trillion-dollar relief package that might be needed to shore up growth against another Covid-19 pandemic wave.

The US registered 126,156 new coronaviruscases on 7th November, marking the second-highest daily count following 132,791 cases reported on 6th November. More than 690,000 new cases were reported over the past 14 days worldwide, marking a fresh record. The trend looks alarming, and may not reach a tipping point soon without imposing stricter social-distancing measures or a success in vaccine development.

US non-farm payrolls data came in slightly better than expected last Friday, with 638k new jobs created in October. The reading marked a fourth consecutive monthly deceleration as government hiring slowed. Another pandemic wave may point to even weaker jobs market momentum in the months to come, exerting downward pressure over the US Dollar as markets may anticipate fresh monetary and fiscal easing.

Source: Bloomberg, DailyFX

Asia-Pacific stocks look set to open in a cautiously optimistic mood amid a quiet day on the economic calendar. Investors may shrug of near-term election uncertainties, but the real challenge (pandemic risk) is perhaps yet to come.

This week’s key market events include:

November 9th(Monday):

  • Germany balance of trade
  • ECB President Lagarde speech, BoE governor Bailey speech

November 10rd (Tuesday):

  • China inflation rate, PPI
  • UK employment change and unemployment rate
  • Eurozone ZEW economic sentiment index

November 11th (Wednesday):

  • Australia Westpac consumer confidence
  • New Zealand interest rate decision and RBNZ press conference

November 12th(Thursday):

  • Germany inflation rate
  • UK GDP rate
  • US inflation rate, weekly jobless claims

November 13th (Friday):

  • EIA DOE crude oil inventory
  • China new yuan loan
  • Eurozone GDP rate 2nd estimate
  • US University of Michigan consumer sentiment

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What does it take to trade around data?

Technically, the S&P 500 index is eyeing an immediate resistance level at 3,550, which it failed to beak twice in early September and mid-October. Overall momentum appears bullish-biased as the MACD indicator continues to expand into positive territory. Traders may be vigilant for a technical pullback at around 3,550 as the index appears to be overbought after registering a 7.3% gain last week.

S&P 500 IndexDaily Chart

S&P 500, Nikkei 225 Weekly Forecast: Stimulus and Pandemic in Focus

Nikkei 225 Index Outlook:

Technically, the Nikkei 225 index broke above the “Ascending Wedge” that it formed since early June, propelled by strong upward momentum. The index is now trading at its highest level seen since 1991. An immediate resistance level can be found at around 25,000.

Nikkei 225 Index Daily Chart

S&P 500, Nikkei 225 Weekly Forecast: Stimulus and Pandemic in Focus

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Don’t give into despair, make a game plan

— Written by Margaret Yang, Strategist for DailyFX.com

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

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