DOW JONES, ASX 200 INDEX OUTLOOK:
- Dow Jones had a decent rebound as investors anticipated a democratic sweep in the US election
- RBA interest rate decision, pandemic developments and Ant IPO are in focus too
- ASX 200 rebounded for a second day, facing an immediate resistance level at 6,000
Dow Jones Index Outlook:
The Dow Jones Industrial Average (DJIA) index rebounded 1.6% on Monday as market participants counted down to the US presidential election. Recent heavy selling in the US stock market may have created an opportunity for investors to buy on the dips, especially when many are anticipating a “Blue Wave” – a Democratic sweep – election outcome. If Biden wins, the Democrats may be empowered to push through a larger fiscal stimulus bill at the expense of a wider deficit to relieve the economic pains brought about by another Covid-19 viral wave.
On the flip side, a “Trump-win” outcome, which is not widely anticipated, may lead to rapid unwinding activities and potential volatile market reactions. If you can recall what happened in the 2016 election, that was the kind of the price action we may see. Safe-haven assets like the US Dollar, Japanese Yen and Treasuries will likely spike up, whereas risk-linked equity index futures, emerging market currencies and commodities may fall.
US corporate earnings continued to fare well, with 24 out of 26 S&P 500 companies beating analysts’ EPS estimates yesterday. So far in the earnings season, more than 80% of the blue chip companies have released better-than-expected Q3 results.
The US has registered 74,236 new coronavirus cases on November 1st, marking a decline for the second day after hitting a record of 99,784 on October 30th. Still, the overall trend of virus counts looks alarming. Pandemic risk remains one of the top hindering factors over the economic recovery, and thus more fiscal and monetary stimulus measures are needed in the EU and the US to cushion the impacts. This may weigh on the Euro and the US Dollar in the weeks to come.
Map of cases (last 14 days)
Asia-Pacific stocks look set to trade broadly higheron Tuesday, led by Australia, Hong Kong and mainland China. Japanese markets are shut for a public holiday.
Chinese fintech giant Ant Financial will debut in both Shanghai and Hong Kong on November 5th, shortly after the US election. Brokers said that it was trading at HK$ 120 – a 50% premium over the IPO price – in the grey market yesterday. This points to a strong investor demand for the fintech company. Meanwhile, Jack Ma and Ant’s top executives were summoned by Chinese regulators for talks, raising concerns over the company’s prospects.
On the macro front, the RBA interest rate decision and US factory orders are among the top events. Find out more on our economic calendar.
Sector-wise, 8 out of 9 Dow Jones sectors closed in the green, with 83.3% of the index’s constituents ending higher on Monday. Materials (+5.12%), energy (+3.81%) and industrials (+3.52%) were among the best performers, whereas communication services (-0.23%) and information technology (+0.48%) were lagging behind.
Dow Jones Index Sector Performance 02-11-2020
Technically, the Dow Jones index tested a key support level at 26,600 (23.8% Fibonacci retracement) and has since rebounded. This could be a technical rebound, however, as the index is likely to form a “Death Cross” on its daily chart, with 20- and 50-Day Simple Moving Average (SMAs) crossing below the 100-Day SMA. The formation of a “Death Cross” suggests that selling pressure may be prevailing.
Dow Jones Index – Daily Chart
ASX 200 Index Outlook:
Technically, Australia’s ASX 200 stock benchmark hit a major resistance level at 6,200 and has retraced since then. The index has entered into the lower Bollinger Band, suggesting that downward pressure is prevailing. If ASX 200 could stand above its 20-Day SMA, it may signal a potential trend reversal. Immediate resistance levels can be found at the 6,000 and then 6,200.
ASX 200 Index – Daily Chart
— Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter