Pandemic, Reflation Trade in Focus

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

Major US equity indices closed at all-time highs as daily infections fell to three-month lows
Japan’s Q4 GDP beat expectations, setting a positive tone for the Asia-Pacific session
Bitcoin moved higher to challenge the 50k mark after a Morgan Stanley investment unit considered betting on it

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Pandemic, Bitcoin, FOMC minutes, Asia-Pacific Stocks Weekly Outlook:

Asia-Pacific markets kicked off the week with a positive tone after major US indices finished at record highs last week. Stimulus hopes, vaccine rollouts and the prospects of easing lockdowns helped to buoy sentiment and added fuel to recent reflation trades.

The ASX 200 index opened 0.8% higher on Monday, led by energy (+1.55%), materials (+1.38%) and information technology (+0.92%) sectors, whereas defensive-linked utilities (-0.28%) and health care (-0.08%) lagged. Rising crude oil prices and strength in copper, iron ore and nickel helped to underpin materials and energy stocks. The ASX 200 index appeared to be riding the tailwind of a commodity upcycle and trended higher.

Japan’s Q4 GDP (QoQ) reading came in at an annualized rate of 12.7%, higher than the baseline forecast of 9.5%. Stronger-than-expected economic growth may keep the Nikkei 225 index afloat, setting an upbeat tone for the rest of the region.

US markets are shut on Monday for Washington’s Birthday holiday, while Hong Kong, mainland China and Taiwan remain closed for the Chinese New Year holiday. As such, liquidity and trading activity might be light across the Asia-Pacific region.

The bright spot is probably Bitcoin, with its prices surging above 49k to record highs. This is after an investment arm of Morgan Stanley said it is considering betting on it, according to Bloomberg. Prior to this, Tesla also announced a US$ 1.5 billion investment in the popular cryptocurrency and said it may consider accepting Bitcoin as a payment method in the future. More mainstream attention and adoptions may continue to support prices, which have already advanced over 50% over the last two weeks.

Bitcoin

Chart by IG

The US registered 84,727 new Covid-19 cases on February 13th, marking the lowest reading since November 2nd. A marked decline in daily new infections painted a brighter outlook of economic recovery and normalization of business activity. A better-handled pandemic situation, alongside an impending Democratic fiscal stimulus package, have buoyed reflation hopes and led equity, crude oil and industrial metals higher.

More countries and regions are easing lockdown measures with vaccine rollouts helping to contain the spread of the coronavirus. The UK will likely allow schools to reopen in early March, and Hong Kong will permit restaurant dining and relax some social-distancing rules after the lunar new year holidays. On the other hand, New Zealand imposed a 3-day lockdown on Auckland after three new local Covid-19 cases were found. The New Zealand Dollar traded lower against the G10 peers, pulling off slightly from its recent highs.

US Daily New Covid-19 Cases

Source: Google

Looking ahead, traders are facing a busy week in terms of macroeconomic data. Eurozone GDP data and Germany’s ZEW economic sentiment index will be released on Tuesday. UK inflation data on Wednesday may put the British Pound in focus, while the US retail sales figure could impact both the US Dollar and equities. Thursday’s release of FOMC meeting minutes and Friday’s US Markit manufacturing PMI data are of high importance too. Find out more on DailyFX calendar:

Looking back to Friday,9 out of 11 S&P 500 sectors ended higher, but only 35.6% of the index’s constituents closed in the green. Energy (+0.82%), materials (+0.65%) and healthcare (+0.46%) were among the best performers, whereas utilities (-0.41%) and real estate (-0.30%) were lagging behind.

S&P 500 Index Sector Performance 12–02-2020

Source: Bloomberg, DailyFX

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What does it take to trade around data?

Nikkei 225 Index Technical Analysis:

The Nikkei 225 index extended its upward trajectory within the upper Bollinger Band, suggesting that the near-term bull trend remains intact. The middle Bollinger Band (20-Day SMA) may serve as an immediate support level, with the upper Bollinger Band acting as dynamic resistance. A breakout above the psychological resistance level of 30,000 may open the door to challenge key resistance at 30,310 (100% Fibonacci extension), whereas a pullback from here could result in a test of support at 29,340 (76.4% Fibonacci extension).

Nikkei 225 Index – Daily Chart

ASX 200 Index Technical Analysis:

The ASX 200 index is trending higher within the “Ascending Channel” as highlighted below. The overall trend remains bullish-biased as suggested by upward-sloped Moving Averages. An immediate resistance level can be found at 6,935 (the 200% Fibonacci extension), and an immediate support level can be found at 6,780 (20-Day SMA).

ASX 200 Index – Daily Chart