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Fed may provide additional liquidity but cautious of profit-taking in stocks

CMC Markets

The post US election’s “risk-on” behaviour had started to spread into the broader spectrum of the US stock market where the Russell 2000 (US domestically oriented stocks) staged a rally of +2.8% that edged out over slightly above the technology heavy Nasdaq 100 + 2.6% while the S&P 500 notched up a gain of +2.0%.

All in all, these key benchmark US stock indices had advanced by +8% to +10% since last Friday low, 30 Oct 2020, their best performances seen since April 2020. In addition, S&P sectors performances had indicated a rotation back into value plays where the Materials took the leadership position with a stellar gain of +4.1% over Information Technology +3.1%.  A notable observation to take note was the semiconductor sector where it had surged by +4.5% to fresh all-time high led by Qualcomm +12.8% after its earnings bear expectations.

The US dollar took a massive hit on the downside yesterday where the US Dollar Index declined by -0.9% (92.63), its worse single day performance since 26 March 2020, right now it is coming to retest a major ascending support in place since April 2011 low at 92.15. Among the majors, the USD/JPY plunged by -0.96% (103.50) and broke below the 104.00 medium-term range support in place since 31 July 2020, the next major support to watch will be at 102.40/101.18 (March 2020 swing low area).

The weak dollar performance had also benefited Gold futures (COMEX) as it surged by 2.7% to end the yesterday’s US session at $1946.8 per ounce that broke above the medium-term range top of 1933 that had capped price action in a sideway fashion since early October 2020.

Hence, the overriding macro theme play in the markets now is bullish risk assets (stocks) and Gold with a soft US dollar supported by more liquidity pumping or dovish guidance from central banks especially from the Fed. Yesterday’s Fed FOMC had concluded with no change on its policy and left its key benchmark Fed rate at a record low near zero. Interestingly, Fed Chair Powell in his press conference had signalled its readiness to do more if needed to support the US economy by altering its bond buying programme. The current pace of buying is at US$120 billion per month in bonds, US$80 billion in Treasuries and US$40 billion in mortgage bonds and Powell’s latest comments seems to have raise the possibility of a change in the pace as soon as the next FOMC meeting in December.  

Over to Asia, mega Chinese tech giant, Alibaba Group’s earnings for the September quarter had managed to beat expectations; (CNY 155.1 billion in revenue vs. consensus of CNY 155 billion, CNY 17.97 earnings per ADS vs. consensus of CNY 14.16 earnings per ADS) but its revenue growth continued to slow down. In Hong Kong trading, Alibaba shares (9988 HKG) has declined by -3.2% at this time of the writing in line with a loss of -2.7% seen yesterday on its ADR share (BABA) listed in US.

Mix performance were seen in Asia stocks at the moment with profit taking activities seen on some benchmark indices; Hong Kong’s Hang Seng Index (-0.16%) & Hang Seng Technology Index (-1.26%), China’s CSI 300 (-0.15%),  Singapore’s Strait Times Index (-0.7%). Gainers so far were Japan’s Nikkei 225 (1.1%), Australia’s ASX 200 (+0.8%) while South Korea’s KOSPI remained almost unchanged (+0.07%).

Chart of the day – Hong Kong 50 (Hang Seng Index) is testing 26050 major resistance

Source: CMC Markets platform


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