Asia Day Ahead: Soft start to the week, Hang Seng Index at near two-month low

Asia Open

The Asian session looks set for a softer session today, without much of a cheer in Wall Street to end last week as the Trump-induced rally continue to see some pullback. A less-dovish Federal Reserve (Fed) is much to blame, further underscored by strong US retail sales, with an upward revision to September’s number aiding to offset some underlying weakness in the October read. The recent run in positive US economic surprises seems to make earlier rate cuts look like an overreaction, and we may expect the less-dovish rhetoric from US policymakers to persist into the December meeting, as the Fed increasingly sets the stage for an upcoming rate hold as soon as the January 2025 meeting.

Ahead, one may expect some attempt for risk sentiments to stabilise near-term amid a slight breather in the Treasury yields’ rally. Market participants will likely be keeping a close eye on the 4.5% level in the US 10-year Treasury yields, with its recent interaction potentially a trigger for last Friday’s sell-off. Any subsequent move back above the 4.5% level may be a catalyst for unease to global markets by prompting market participants to revisit the opportunity costs that come with holding equities.

At the time of writing, the Nikkei is down 0.86%, the ASX is down 0.21% while the KOSPI is up 1.6%. The economic calendar is light to start the week, but there will be much anticipation around NVIDIA’s earnings this week to single-handedly dictate market direction. Given that its share price has recently reclaimed its previous highs, expectations for an outperformance is a given, with focus likely to revolve around whether its guidance can continue to impress.

Chinese equities could see some stabilising ahead, with the Nasdaq Golden Dragon China Index inching out a 0.8% gain last Friday following an 8% sell-off over the past week. There are some green shoots in China’s economy, with retail sales up 4.8% in October versus the 3.8% expected, although industrial production, fixed asset investment and home prices underperformed. The risks here are that any strength in retail spending could fizzle off following the October festive season, and in the absence of stronger fiscal stimulus measures to support its recovery momentum.

Hang Seng Index hovers at near two-month low

Disappointment over China’s fiscal stimulus plans has prompted a drift lower in the Hang Seng Index to its near two-month low at around the 19,454 level. Its daily relative strength index (RSI) has dipped back below its mid-line since its September rally. We may expect sentiments to remain subdued for now, as more clarity still awaits over Trump’s upcoming trade pressures, while decisions around the upcoming loan prime rate settings this week are likely for a no-change, which could suggest that the wait for more stimulus may drag on for now.