Asia Day Ahead: Asian indices climb with Wall Street optimism and US dollar decline

Asia Open

We head into the new week with a continued drift higher in Asian indices, as Wall Street left risk sentiments on a more optimistic note to end last week. Flash Purchasing Managers' Index (PMI) data out of the US has been encouraging, with the manufacturing sector coming in line with expectations (48.8), while strength in services activities continue to be the standout. The US services PMI has registered its highest level since March 2022, adding to the string of economic upside surprises that we have seen in the US since August this year and should further put hard landing talks to rest.

The Nikkei is up 1.14%, the ASX is up 0.57% and the KOSPI up 0.87% at the time of writing. The news of President-elect Donald Trump’s nomination of Scott Bessent as the new US Treasury Secretary may offer some first-hand positive reaction to markets, with his nomination likely to further reinforce Trump’s business-friendly stance around tax cuts and deregulation, while offering some consolation around his view for a tempered use of tariffs.

Corrective move in the US dollar may see Asian indices edging out further gains

We are seeing somewhat of a corrective move in the US dollar (-0.5%), which has a sharp reaction to the downside this morning, in tandem with a move lower in US Treasury yields. A touch of the 108.00 level has been met with strong selling pressures to end last week, leaving it as a crucial resistance to watch ahead.

Having delivered eight straight weeks of gains for the US dollar, there are some room for the “Trump trade” to cool in the near term, as upside momentum seems challenged with the formation of a short-term bearish divergence on its daily relative strength index (RSI). The backdrop of a weaker US dollar may likely see Asian indices take the opportunity to edge out further gains, with eyes on whether Chinese equities can regain some footing following its earlier dip.

However, whether the corrective move in the US dollar will be a short-lived one may revolve around the US core Personal Consumption Expenditures (PCE) price index ahead this week. Expectations are for core PCE to edge higher to 2.8% from the 2.7% prior, while headline may edge to 2.3% from the 2.1% prior, once again showing that the last-mile inflation fight will be an arduous one. With market participants having heard the less dovish rhetoric coming from US policymakers lately, we may only see rate expectations sway more significantly towards a rate hold in any upside inflation surprises.

ASX 200 back to retest top end of channel

The ASX 200 index continues to trade within its rising channel pattern, with a bounce off its Ichimoku Cloud support paving the way for the index to deliver a new record high. For now, a near-term channel resistance at the 8,480 level may offer some obstacle to overcome, but a glide higher into year-end is likely to remain the narrative, with the prevailing upward trend along with positive year-end seasonality. Any near-term profit-taking may leave the 8,369 level on watch as a resistance-turned-support level to hold, while a near-term price target may be the 8,542 level.

ASX 200 daily chart