Asian Open: China Rout Weighs on Wall Street, AU CPI Up Next

A combination of weaker equities across Asia, the pending FOMC meeting and month-end flows knocked Wall Street from its highs overnight.

China

Asian Futures:

  • Australia's ASX 200 futures are down -31 points (-0.42%), the cash market is currently estimated to open at 7,400.40
  • Japan's Nikkei 225 futures are down -410 points (-1.47%), the cash market is currently estimated to open at 27,560.22
  • Hong Kong's Hang Seng futures are up 206 points (0.82%), the cash market is currently estimated to open at 25,292.43

UK and Europe:

  • UK's FTSE 100 index fell -29.35 points (-0.42%) to close at 6,996.08
  • Europe's Euro STOXX 50  index fell -37.76 points (-0.92%) to close at 4,064.83
  • Germany's DAX index fell -99.85 points (-0.64%) to close at 15,519.13
  • France's CAC 40 index fell -46.68 points (-0.71%) to close at 6,531.92

Tuesday US Close:

  • The Dow Jones Industrial fell -85.79 points (-0.24%) to close at 35,058.52
  • The S&P 500 index fell -20.84 points (-0.48%) to close at 4,401.46
  • The Nasdaq 100 index fell -168.98 points (-1.12%) to close at 14,956.97


Indices:

US indices closed the day lower as traders squared up positions ahead of the FOMC meeting and month-end, whilst sentiment took a knock from China’s stock market rout. Chinese companies listed on US stock markets were under selling pressure due to the regulatory crackdown from Beijing over the weekend, with rumours circling that US funds were pulling money out of China’s markets. Alibaba (BABA) fell to a 16-month low.

Tech stocks led the decline with the Nasdaq-100 falling over -2% early in the session during its worst session in two months, before closing -1.1% on the day. The S&P 500 fell -0.47% led by communication services and consumer discretionary sectors. The Dow Jones (DJI) took it within its stride and fell just -0.38%, closing above 35k for its third day in history.

The ASX 200 rose to a record high overnight to finally see it break out of its 1-month range, in line with its bullish trend. However, futures point to a soft open around 7400 and its prior record high, which could prove to be a pivotal level this session.


ASX 200 Market Internals:


ASX 200: 7431.4 (0.50%), 27 July 2021

  • Materials (1.58%) was the strongest sector and Information Technology (-0.98%) was the weakest
  • 7 out of the 11 sectors closed higher
  • 5 out of the 11 sectors closed lower
  • 4 out of the 11 sectors outperformed the index
  • 87 (43.50%) stocks advanced, 103 (51.50%) stocks declined
  • 67% of stocks closed above their 200-day average
  • 56.5% of stocks closed above their 50-day average
  • 54% of stocks closed above their 20-day average

Outperformers:

  • + 6.5%   -  OZ Minerals Ltd  (OZL.AX) 
  • + 6.4%   -  BlueScope Steel Ltd  (BSL.AX) 
  • + 4.3%   -  Virgin Money UK PLC  (VUK.AX) 

Underperformers:

  • -6.25%   -  A2 Milk Company Ltd  (A2M.AX) 
  • -5.47%   -  Crown Resorts Ltd  (CWN.AX) 
  • -4.48%   -  Nuix Ltd  (NXL.AX) 


Forex: JPY strongest major during risk-off trade

The Japanese yen was the strongest major currency overnight as it sucked up safe-haven inflows from China’s stock market rout, whilst commodity currencies were the weakest during a classic risk-off play. USD/JPY shed -0.56% to a five-day low, NZD/JPY and CAD/JPY were the largest losers of the day whilst GBP/NZD was the strongest gainer.

The British pound was the second strongest currency which surged at the daily FIX at 15:00 BST (when forex benchmarks are calculated). The reasons for the pound’s sudden pop but it shows a demand for the currency, although month-end-flows could play a part. As for Covid the UK enjoyed a sixth consecutive day of falling new cases.

GBP/USD held above 1.3772 support before rallying to a high of 1.3895, just shy of our 1.3900 target. GBP/AUD rose to its highest level since May 2020, EUR/GBP fell to an 8-day low and is close to testing the July low.

AUD pairs are in focus ahead of today’s inflation data for Q2 at 11:30 AEST. Trimmed mean CPI, the RBA’s preferred gauge, is forecast to rise to 1.6% YoY from 1.1% and to rise to 0.5% QoQ from 0.3%. Whilst the Aussie has bounced from its lows recently, a weak print could cement a swing high on place for AUD/USD and AUD/JPY. AUD/NZD has found support at the February low of 1.0540 but this could come under threat with a weak print. Conversely it may make the preferrable long for bulls to consider, should inflation surprise to the upside.


AUD/JPY is within an established downtrend on the daily chart, although five of the past six sessions have been part of a countertrend move. Yet the combination of the small bearish hammer, hanging man reversal and bearish outside candle suggest a swing high may have formed at 81.66. Furthermore, resistance has been found at the 200 and 10-day eMA and the recent retracement failed to retest the February low.


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Commodities: Metals bend under bearish sentiment

Silver prices finally rolled over during risk-off trade after finding resistance at the 200-day eMA three days in a row. Our bias remains bearish beneath the 25.45 high with the lows around $14 in focus. Keep in mind that silver (and gold) prices will be sensitive to the FOMC meeting which may turn out to be a volatile event.

Gold remains very much range-bound ahead of the FOMC meeting where we expect volatility (and hopefully a directional break) to occur.

Palladium futures fell to a 5-day low and settled just above 2602, not far from our target around 2550.


Up Next (Times in AEST)


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