Asia Day Ahead: where are Asian indices headed after the hawkish Fed?

Asia Open

The Asian session is set for a mixed open, with the Nikkei 225 +0.32%, ASX 200 -1.12% and KOSPI -1.28% at the time of writing. The short-lived bounce across major United States (US) indices overnight still reflects lingering concerns over a hawkish Federal Reserve (Fed) outlook.

The 'good news is bad news' mantra has resurfaced, with stronger US economic data fuelling another climb in US Treasury yields and posing a hurdle for risk sentiment. Lower-than-expected US unemployment claims and an upward revision in third-quarter (Q3) US gross domestic product (GDP) have been the key takeaways, with US economic resilience aligning with the high-for-longer Fed rate outlook.

Looking ahead, a pullback in 10-year yields below the 4.50% level may be necessary to provide near-term market relief, with the upcoming US personal consumption expenditures (PCE) data likely to play a pivotal role in setting its direction.

Key data on watch ahead

The economic calendar will highlight China’s one-year and five-year loan prime intertest rate decision ahead, though this is likely to be a non-event, as rates are expected to remain unchanged. Following an October cut in the loan prime rate, inaction on its medium-term lending facility (MLF) rate or 7-day reverse repo rates thereafter may serve as justification for the no-move. Authorities may continue to tread in its wait-and-see for now, as the Trump Administration draws nearer.

Looking ahead to the end of the week, all eyes will be on the U.S. core PCE price data. With the Fed raising concerns about inflation risks through significant upward revisions to its 2025 inflation forecast, the PCE data could determine whether relief is in store for US Treasury yields - which have been an ongoing pressure point for the equities market.

Expectations are for both headline and core PCE to rise by 0.2% month-on-month (MoM), which would suggest that inflationary pressures are broadly under control. Whether we see a Santa Claus rally this year may hinge on the absence of any surprises in the data.

ASX eyeing for lower channel trendline

The ASX 200 has dipped to its six-week low this week, with a near-term support confluence at the 8230 level giving way following a hawkish Fed outcome. Having traded in a broad rising channel pattern since the start of the year, this may leave the lower channel trendline support at the 8056 level in focus as the next potential support.

Any breakdown below this trendline could signal a deeper pullback towards the 7553 level, based on the channel's price target projection. Currently, sellers remain in control for now, as reflected in the daily relative strength index’s (RSI) struggle to move back above the midline.

ASX 200 daily chart

Singapore Blue Chip Cash rolling over from year-to-date high

After reaching a year-to-date high at the 382.52 level, the Singapore Blue Chip index rolled over this week, as bearish divergence in the RSI points to waning upward momentum. Moving forward, a key support zone may emerge around the 362.28 level, where the lower channel trendline aligns with the daily Ichimoku Cloud and the 100-day moving average (MA).

A break below the 100-day MA could pave the way for a deeper retracement toward the 345.80 level, which was marked by prior consolidation in October this year.

Singapore Blue Chip daily chart

China A50 index remains range-bound

The China A50 has shown limited downside reaction to the hawkish Fed, potentially with much bearishness already in place even before the Fed meeting. Since October of this year, the index has been confined to a broad trading range.

For Chinese equities, policy developments are likely to play a larger role than technical factors, and the absence of new policy measures from Chinese authorities may prolong the current consolidation. A potential breakout from the rectangle pattern warrants attention, with the upper boundary at the 14,345 level and the lower boundary at the 12,918 level.

For now, a flatlined RSI and moving average convergence/divergence (MACD) suggest indecision and a waning in market momentum.

China A50 daily chart