Stock Indices Preview: S&P500 Futures Up But Fed Volatility Ahead
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Stock indices in Asia began the week in muted fashion, but European equities and US futures are positive ahead of Fed and BoE meetings.
Hong Kong’s Hang Seng ends lower, China PMI shocker
The markets in Asia have begun rather muted although momentum will probably pick up later on in the week with the expected Fed announcement on asset purchase tapering.
Hong Kong shares ended lower on Monday, dragged down by tech and healthcare shares, as China’s latest oversight framework on its tech sector spooked its internet giants.
China manufacturing PMI data released at the end of last week registered the second successive month of contraction in output as the energy crisis and real estate sector woes hurt the economic recovery.
Covid infections are also spreading in mainland China as it seeks to maintain its Zero Covid policy.
The Hang Seng index fell 0.9%, to 25,154.32, while China Enterprises Index lost 0.7%, to 8,899.32 points.
The Hang Seng Tech index lost 1.5% after China’s market regulator proposed a long list of responsibilities it said it wanted the country’s internet platforms to implement.
Most Asian currencies weakened against a stronger dollar on Monday as traders eyed major central bank meetings later this week for signals on their rates policy as inflation spikes. However, the Thai baht fell despite an easing of international border curbs.
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US stock indices continue to look positive
Interestingly, the S&P 500, Dow and Nasdaq 100 all managed to end the week at all-time highs despite the added concern of Amazon and Apple earnings misses.
US stock futures are currently higher by 0.40% on the S&P 500, Dow and the Nasdaq 100.
There is a clear theme to focus on in the week ahead around monetary policy, with the Federal Reserve’s expected taper announcement the key risk event. US manufacturing PMI is also on tap today.
Although big tech behemoths Amazon and Apple missed their earnings forecasts, the major indexes still performed quite well overall.
There have been various arguments that the stock market continues to ignore risk issues and that opportunity remains greater than the risks ahead. Disappointing earnings appear to have been brushed aside.
S&P 500 Poised for more record highs
The S&P500 appears to be looking at more record highs as it seems to have brushed off all the negative news. The index closed at 4602 on Friday with a 0.2% increase but seems to be looking at further gains.
Perhaps the most comforting argument for a ‘complacent’ bull chasing momentum is the seasonal perspective, which shows the S&P 500 has historically advanced through November and December, although volume and volatility tend to fade.
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Nasdaq bullish start to the week
The Nasdaq is also looking positive with considerable bullish momentum all round. Beyond the pressure that will be exerted on general market confidence, there also remains a glaring disparity in perspective represented by US stocks and the course for the rest of the spectrum of ‘risk’ leaning markets across the world and across asset types.
The tech-heavy Nasdaq 100 continues to outperform versus just the so-called ‘value index’ of the Dow, pushing us to levels last seen since the Dot-com boom and bust. Beyond the speculative concentration highlighted between these close peers, the charge to fresh record premium for US equities relative to global counterparts makes an even more dramatic impression.
Stock indices await central bank decisions
While Friday’s Non-Farm Payroll is a critical event risk for the Dollar and US markets this week, the outcome of the Federal Reserve’s FOMC meeting is the principal concern of the global markets. The Fed will lay out its schedule for reducing its monthly asset purchases (currently $120 billion) – a critical policy adaptation before the future first-rate hikes.
Tightening in monetary policy will impact the loose money environment that has arguably helped to inflate equity valuations, particularly in the tech sector.
Also, any indication of a bringing forward of rate rise in 2022 could see yields move higher and would likely be interpreted negatively by stock market participants.
