22-5-2020 10:27:5322-5-2020 10:14:15Asian markets set to rebound on Tuesday following a 3% rally in Wall Street. WTI Crude oil prices has found some support at around US$ 20.0, and staying above this level could alleviate investors’ concerns of a rapidly deteriorating energy sector.
The volatility index subsided to 49.3 area, from the recent peak of 80 seen in mid-March.
The markets are trying to strike a balance by measuring the still-escalating Covid-19 pandemic globally versus global central banks’ astonishing rescue packages.
The fact that US infection numbers soared recently didn’t raise more panic, instead it calmed investors. This is because proper testing is an important process of identifying symptomatic infections so that necessary distancing measures could be put in place to contain the spread. As the testing process picks up, we are moving closer to reaching the peak.
Technically, the S&P 500 index is challenging a key resistance level at 2,646 points (38.2% Fibonacci Retracement from recent peak to through). Breaking out above this level would open room for more upsides towards 2,790 (50%). A pullback from here could lead to more downside towards 2,400 points, which is a psychological support level.
Traders today will focus on the release of the China NBS PMI reading to access the resumption of business activities following a national-wide lockdown in February. The markets foresee a decent rebound to 45.0 from last month’s reading of 35.7. But this might prove to be a short-lived rebound in manufacturing sentiment as external demand for Chinese goods are set to slump drastically in March as the Covid-19 pandemic swept EU and North America.
Economists from IHS Markit believe that the Covid-19 recession will be deeper than the one following the global financial crisis (GFC) in 2008, and it will likely take 2-3 years for most economies to return to their pre-pandemic levels of output. This mid- to long-term perspective, if turns out to be true, will limit the upside of the stock market rebound.
China PMI NBS Manufacturing
Margaret Yang Yan