Dow Jones Extends Gains amid Tech Rout. Will Nikkei 225, ASX 200 Follow?

DOW JONES, NIKKEI 225, ASX 200 INDEX OUTLOOK:

  • Dow Jones, S&P 500 and Nasdaq 100 closed +0.97%, -0.54%, and -2.92% respectively
  • 10-Year Treasury yield continued to edge higher, closing at a fresh 12-month high of 1.599%
  • Rising yields may weigh on the technology sector, buoying cyclically sensitive names

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Reflation, Stimulus, Yields, Gold, Asia-Pacific at Open:

Wall Street equities had another mixed session as reflation hopes inspired investors to rotate out from growth and into value names. The Dow Jones index finished up 0.97%, while the Nasdaq 100 index tumbled 2.92%. The technology sector continued to underperform cyclically-sensitive ones such as energy, financials and consumer discretionary. Rising yields further weighed on the tech sector, which tends to offer lower dividend yields and thus are more susceptible to profit-taking activity.

Prospects for reopening also encouraged market participants to liquidate the white-hot tech stocks, which have largely outperformed during the pandemic. Heavy losses were seen among the Nasdaq 100 index components overnight, with NVIDIA (-6.97%), Tesla (-5.84%) and PayPal (-5.42%) among the worst performers.

Dow Jones Extends Gains amid Tech Rout. Will Nikkei 225, ASX 200 Follow?

Source: Bloomberg, DailyFX

Breakthrough on the US stimulus packaged failed to lift market sentiment on Monday, as Asia-Pacific markets retreated broadly amid rising longer-term Treasury yields and a resurgence in the US Dollar. The DXY US Dollar index climbed to a fresh three month high of 92.37, driven by safe-haven bid as well as hopes for a faster pace of economic recovery in the US with fresh stimulus payouts. The 10-year Treasury yield climbed 2.13% to a fresh 12-month high of 1.599%. Against the backdrop of a stimulus-backed reflationary theme and the Fed’s reluctance to address rising longer-term borrowing costs, yields may continue to nudge higher, exerting downward pressure on tech stocks, precious metals and crude oil prices.

Crude oil prices retreated from a 12-month high after the knee-jerk reaction following the attack on Saudi Arabia’s oil facility faded quickly. Gold prices extended losses to a fresh 9-month low of US$ 1,683 amid a rising US Dollar and yields.

Dow Jones Extends Gains amid Tech Rout. Will Nikkei 225, ASX 200 Follow?

Source: Bloomberg, DailyFX

Asia-Pacific markets look set to open in a cautiously optimistic tone, with futures across Japan, Australia, Hong Kong, Taiwan, Singapore Malaysia and India pointing to open mildly higher. Australia’s ASX 200 index opened up by 0.73%, led by financials (+1.33%), consumer discretionary (+1.27%) and consumer staples (+1.26%) sectors, while information technology (-3.25%) lagged behind. Japan’s Nikkei 225 index opened marginally lower amid an disappointing Q4 GDP figure. Japanese Q4 real GDP reading came in at an annualized growth rate of 11.7% YoY, lower than the baseline forecast of 12.8%.

Looking ahead, Euro area Q4 GDP growth rate and German balance of trade headline the economic docket alongside China’s National People’s Congress. Find out more from DailyFX calendar.

Looking back to Monday’s close, 8 out of 9 Dow Jones sectors ended higher, with 83.3% of the index’s constituents closing in the green. Communication services (+5.17%), financials (+1.95%) and consumer discretionary (+1.42%) were among the best performers, while information technology (-0.51%) was a clear drag.

Dow Jones Sector Performance 08-03-2021

Dow Jones Extends Gains amid Tech Rout. Will Nikkei 225, ASX 200 Follow?

Source: Bloomberg, DailyFX

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Dow Jones Index Technical Analysis

The Dow Jones indexextended higher within the “Ascending Channel” formed since early November 2020. An immediate resistance level found at 31,916 (the 76.4% Fibonacci extension, breaking it would probably intensify near-term buying pressure and bring the 100% Fibonacci extension level (32,863) into focus. The overall trend remains bullish-biased as suggested by the upward-sloped moving averages. The MACD indicator has formed a bullish crossover, suggesting that near-term momentum has turned.

Dow Jones Index Daily Chart

Dow Jones Extends Gains amid Tech Rout. Will Nikkei 225, ASX 200 Follow?

Nikkei 225 Index Technical Analysis:

The Nikkei 225 index failed to breach the 161.8% Fibonacci extension level (30,455) and has since entered a technical correction. An immediate support level can be found at around 28,534, where the 50-day SMA and the 100% Fibonacci extension intercept. A daily close below this level would probably intensify near-term selling pressure and bring the next key support level of 27,870 into focus. The MACD indicator trended lower after the formation of a bearish crossover, suggesting that near-term momentum is tilted to the downside.

Nikkei 225 IndexDaily Chart

Dow Jones Extends Gains amid Tech Rout. Will Nikkei 225, ASX 200 Follow?

Chart by TradingView

ASX 200 Index Technical Analysis:

The ASX 200 index failed to breach the 200% Fibonacci extension level (6,934) and has since entered a technical correction. A key support level can be found at 6,730 – the 161.8% Fibonacci extension. Prices appear to be consolidating within the “Ascending Channel”, the ceiling and floor of which may serve as immediate support and resistance levels respectively. The MACD indicator is trending lower towards the neutral midpoint, suggesting that near-term momentum remains weak.

ASX 200 Index – Daily Chart

Dow Jones Extends Gains amid Tech Rout. Will Nikkei 225, ASX 200 Follow?

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— Written by Margaret Yang, Strategist for DailyFX.com

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