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CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Asia Day Ahead: China A50 struggles with weak China’s inflation, while Nikkei extends gains

Disappointment over the pace of disinflation in the US sought to challenge the Wall Street rally, although major US indices managed to eke out a flat close on some overnight dip-buying.

China Source: Bloomberg

Market Recap

Disappointment over the pace of disinflation in the US sought to challenge the Wall Street rally, although major US indices managed to eke out a flat close on some dip-buying into the second half of the trading session. Both the headline and core US consumer price index (CPI) surprised slightly on the upside, but market participants were not buying into the stance that the Federal Reserve (Fed) will delay rate cuts because of a single data, while economic risks persist in the economy.

The US economic surprise index has touched its lowest level since May 2023 lately, suggesting that US economic conditions have not been outperforming as much as before. The broader inflation trend still points towards further easing in pricing pressures as well, with the core aspect registering its lowest level since May 2021 at 3.9%.

Treasury yields eventually closed lower for the day, with the two-year yields retesting its December 2023 lows while the 10-year yields dipped back below the 4% level. The US dollar struggled to retain earlier gains, given that expectations for a 25 basis point (bp) cut in March this year did not budge. As a result, gold prices managed to hold up overnight, with buyers defending the US$2,018 level of support and keeping prices above its daily Ichimoku cloud to retain the upward trend. Further upside may see prices set its sight to retest the US$2,074 level of resistance once more.

Spot Gold Source: IG charts

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.97%, ASX -0.14% and KOSPI -0.36% at the time of writing. The Nikkei seems to be setting its sight to deliver a five-day winning streak, with its resilience diverging from the subdued performance across the other parts of the region. Lower Treasury yields and the struggle in the US dollar may offer some relief for sentiments, but China’s inflation data may provide somewhat of a dampener for gains.

While consumer prices manage to come in slightly above estimates (-0.3% versus -0.4% forecast), a continued drift in deflationary territory still points to weak domestic demand in the world’s second largest economy and does not offer much conviction for a turnaround just yet. Producer prices contracted 2.7% year-on-year as well, slightly worse than the 2.6% contraction expected. Overall, the data reinforces the view that the accommodative policy environment with central bank’s liquidity injections and more supportive property measures have yet to drive a trend of recovery, which may call for more to be done from authorities into 2024.

The China A50 continues to struggle, with the index trading within a descending channel pattern on lower highs and lower lows as a sign of the prevailing downward trend. A break below its recent December 2023 low around the 11,000 level may see prices edge towards the 10,600 level next, where the lower channel trendline support may come into play. Thus far, signs of a longer-term trend reversal are not sighted yet, with its weekly moving average convergence/divergence (MACD) revealing an ongoing drift lower in negative territory, while the index failed to overcome its weekly Ichimoku cloud resistance since August 2021. On any upside, the 11,600 level may serve as near-term resistance for buyers to overcome.

China A50 Source: IG charts

Thursday: DJIA +0.04%; S&P 500 -0.07%; Nasdaq -0.01%, DAX -0.86%, FTSE -0.98%


This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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