Nick Goold
Dow Jones Index
The Dow continued to test lower last week, touching support at 34,000 as mixed signals regarding the U.S. economy reduced investor confidence. Major US retailers released second-quarter results, which indicated rising credit-card defaults as higher interest hurt consumers. Also, higher energy prices are reducing consumer confidence as Friday`s University of Michigan consumer sentiment release fell.
The much-awaited Jackson Hole speech by the Federal Reserve Chairman was viewed as positive for equities. Powell stated that the economy is not cooling as expected and was confident in continued growth in the U.S. There was no indication regarding future interest rate moves. Still, investors are optimistic that the Fed is nearing the end of its rate hiking cycle.
As summer holidays end in the U.S., an increase in activity is expected this week. Ahead of Friday`s U.S. unemployment figures, there is likely to be a tug of war to take control of the market. The technical indicators remain bearish, so we are looking for lower levels if the Dow stays below the 10-day moving average.
Resistance: 34600, 35000, 36000, 36500, 37000
Support: 34,000, 33610, 33000, 32550, 31750
Nikkei 225 index
The Nikkei recovered marginally, reclaiming important support at 31,650. Inflation data released Friday was lower than expected, allowing the Bank of Japan to continue its accommodative monetary policy. One concern for investors is that the 10-year Japanese yield touched 0.68%, the highest level in a decade. Japanese consumers are used to very low mortgage rates, so continued rises could negatively impact the demand.
The USDJPY fell initially on the higher Japanese yields but recovered strongly to the end of the week. The threat of action by the Bank of Japan to stem the USDJPY`s rise will make buyers of Japanese equities wary.
The close on Friday was encouraging, and Japanese department stores are reporting strong demand as tourists flock back to Japan. The 31650 support level is vital, and looking for higher levels this week and a test above 32,000.
Resistance: 33000, 34000, 35000
Support: 31650, 30800, 30500, 30000
