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S&P 500 Falls With Stimulus Hopes, ASX 200 Gains as RBA Touts Easing

S&P 500, ASX 200 INDEX OUTLOOK:

  • S&P 500 index ignored strong bank earnings amid stalling fiscal stimulus talks
  • Australian shares climbed, boosted by RBA’s dovish gesture and less-dismal jobs report
  • ASX 200 index looks set to break a key resistance level at 6,200. The Australian Dollar fell
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S&P 500 Index Outlook:

The S&P 500 index retreated for a second day on vanishing hopes that a fiscal stimulus deal can be inked before the US presidential election. Treasury Secretary Steven Mnuchin made it clear that the chances of a deal remained thin after several talks with House Speaker Nancy Pelosi. Nonetheless, Democratic presidential candidate Joe Biden continued to lead in the polls against Donald Trump with a wide gap, which may bring up hopes for a Democratic-led fiscal aid package as early as in Spring 2021.

Corporate earnings continued to deliver more positive surprises, which may help to cushion the downside of stock markets’ consolidation. Six out of eight S&P 500 constituents, which released their Q3 results on Wednesday, beat analysts’ forecasts (table below). It is worth noting that Goldman Sachs has smashed consensus EPS forecasts by 75%. Lower loan-loss provisions and strong trading performance helped to double the bank’s quarterly profit from a year ago.

Morgan Stanley and Charles Schwab are among the major US companies to release earnings on Thursday, followed by Honeywell and Bank of New York Mellon on Friday.

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Sector-wise, the majority of the S&P 500 sectors closed in the red, with more than 60% of the constituent companies falling on Wednesday. Industrial (+0.54%), materials (+0.35%) and energy (+0.31%) were leading, whereas consumer discretionary (-1.43%), communication services (-1.18%) and real estate (-1.16%) were lagging.

S&P 500 Index Sector Performance 14-10-2020

S&P 500 Falls With Stimulus Hopes, ASX 200 Gains as RBA Touts Easing

Source: Bloomberg, DailyFX

Technically, the S&P 500 index appeared to have entered into a minor correction after hitting a six-week high of 3,549 on Tuesday. Given strong upward momentum observed recently, however, the S&P 500 may regain strength after brief consolidation. Immediate support levels can be found at 3,469 (23.6% Fibonacci retracement) and then 3,420 (38.2% Fibonacci retracement) as shown in the chart below.

S&P 500 IndexDaily Chart

S&P 500 Falls With Stimulus Hopes, ASX 200 Gains as RBA Touts Easing

ASX 200 Index Outlook:

Asia-Pacific stocks look set to open broadly lower with the exception of Australian markets. The ASX 200 index rallied after RBA Governor Philip Lowe signaled further easing measures to bring down the long-end government bond yields. Australia’s unemployment rate came in at 6.9%, better than the economists’ forecast of 7.0%. The Australian Dollar fell against its major G10 peers on Thursday morning.

Technically, ASX’s upward momentum seems to be gaining traction with the help of a weakening currency. The index is challenging majors resistance at 6,200 – a level it attempted a few times in the past four months without a success. This time could be different with the help from RBA. A meaningful breakthrough above 6,200 will likely open room for further gains with an eye on 6,525 – the 76.4% Fibonacci retracement in the weekly chart below.

ASX 200 Index Daily Chart

S&P 500 Falls With Stimulus Hopes, ASX 200 Gains as RBA Touts Easing

ASX 200 Index Weekly Chart

S&P 500 Falls With Stimulus Hopes, ASX 200 Gains as RBA Touts Easing

— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter