Asia Day Ahead: tech gains lift Wall Street, but Asian markets remain subdued

Asian markets off to a slow start

The Asian session is off to a slow start, with the Nikkei up 0.19%, the ASX down 0.29%, and the KOSPI down 1.37% at the time of writing. Strength on Wall Street to end last week has not been broad-based, with only four sectors closing in the green, but that did not stop the Nasdaq and S&P 500 from edging to yet another record high.

The heavy lifting was concentrated around a handful of tech stocks, notably with Tesla and Broadcom up 5.3%, while Amazon and Meta were up 2.9% and 2.4% respectively. However, the struggle for value sectors to see any notable gains may leave Asian indices on a more subdued note.

US non-farm payrolls provide mixed signals

The key highlight to digest was the US November non-farm payrolls, which seems to offer something for everyone. A surprise upside in US job additions, along with upward revisions to previous readings, will validate the resilience in the US labour market. US wage growth was higher than expected as well, with a 0.4% increase month-on-month, which should continue to offer a healthy consumer backdrop for a potential soft landing.

The US unemployment rate was slightly higher at 4.2%, which is not too overblown to trigger recession fears, while an edge closer towards the Federal Reserve (Fed)’s year-end projection of 4.4% should give policymakers some reassurance in following through with a 25-basis point (bp) cut this month. The increased certainty around further Fed easing ahead should keep risk sentiments well-supported, and we may expect somewhat of a drift higher in the lead-up to the Fed meeting next week.

China’s inflation data on watch ahead

Today, all eyes will be on China’s inflation data. November consumer prices are expected to tick up slightly to 0.4% from 0.3% previously, while producer prices are projected to improve marginally to -2.8% from -2.9%. These readings may signal some near-term stabilisation, potentially reflecting modest success from recent economic stimulus measures. However, the still-subdued pace of price recovery may continue to underscore weak domestic demand, with households and businesses remaining cautious against an uneven economic backdrop. Concerns around deflation risks are unlikely to dissipate without more substantial progress.

Chinese equities did see some signs of life last week, with a Friday rally bringing the Hang Seng Index (HSI) to end the week up 2.3%. There is likely some optimism mounting around the upcoming annual Central Economic Work Conference this week, which will be on watch to offer more clarity on how policymakers may tackle the economic challenges into next year.

Focus will be on any ramp-up in tone around upcoming policy measures and more clarity over the scale or areas of any fresh economic injections. Sticking to its usual vague script and having little new clarity on any concrete measures ahead may be a source of market disappointment, which could potentially see some gains in Chinese equities unwind.

China's CPI and PPI figures from June 2019 to present

South Korea’s political woes to persist

Political uncertainty in South Korea appears likely to persist. While ruling party lawmakers have backed their leadership to stave off impeachment efforts for now, this is unlikely to mark the end of the challenges facing President Yoon. Growing public outcries and intensifying pressure from the opposition party could potentially increase the risk of defections among People Power Party (PPP) members, which could drive further resistance to his leadership in the coming weeks.

Impact on policy and market sentiment

The ongoing political deadlock diminishes the chances that any meaningful policies will be passed in the near term, which may continue to dampen consumer and business confidence. This sustained uncertainty could weigh heavily on market sentiment, potentially remaining a drag on South Korea’s equities market into the new week. One to watch for is the USD/KRW, which should see further strengthening. A retest of its October 2022 level at 1444.71 could play out, as political gridlock drags on, coupled with the risks of escalation in social unrest.

HSI technical analysis

The HSI has seen a drift higher last week, reflecting some near-term stabilisation as the index manages to cross above a downward trendline resistance for now. However, whether the gains can be followed through will likely revolve around the annual Central Economic Work Conference this week, which could still see bullish sentiments unwind in the event of any disappointment. Its daily relative strength index (RSI) is also back at its key mid-line, where we may have to see a stronger move above the 50 level to denote buyers in greater control.

The risk may come from any drift lower from here, which may then form a new lower high and suggest a continuation of the downward bias. Any drift lower could leave the 18,750 level on watch, where the lower wedge trendline support stands.

HSI daily chart