Asia Day Ahead: China PMI disappoints, Hang Seng Index back at October 2023 low

Market Recap

Wall Street ended the session flat overnight (DJIA +0.04%; S&P 500 -0.09%; Nasdaq -0.16%), with some de-risking observed shortly after opening while the Volatility Index attempted to stabilise around its 2023 lows. Some attention was on the US 3Q gross domestic product (GDP) data release, but its upside surprise failed to sway Federal Reserve (Fed) rate-cut bets much, with the data being backward-looking. Sentiments continue to take its cue from more recent Fed comments to price for 125 basis point (bp) worth of rate cuts by end of 2024.

Aside, the Fed beige book also revealed that US economic conditions have continued to moderate as well, with slower consumer spending, softer labour demand and moderating inflation providing the conviction for more wait-and-see from US policymakers. As such, US Treasury yields declined for the third straight day, with the US 10-year yields touching the 4.255% level. Lower yields did not manage to drag down the US dollar (+0.2%) overnight, although at this point, the broader downward bias in the greenback may remain until it reclaims its 200-day moving average (MA).

Ahead, the US core personal consumption expenditures (PCE) price data – the Fed’s favoured inflation metric will be in focus. Expectations are for US headline PCE to moderate to 3.0% year-on-year in October from previous 3.4%, while the core aspect is expected to soften to 3.5% from previous 3.7%. The data will be on watch to clarify the extent to which the disinflation process was continuing, which will be key to support market pricing of rate cuts as early as May 2024.

The Russell 2000 index failed to reclaim its 200-day MA for now, with an overnight retest met with a strong bearish rejection, which proves the trendline as a key resistance to defend from sellers. An inverse head-and-shoulder formation breakout may still leave hopes of further upside into year-end, but a move above yesterday’s high will be warranted to reflect greater control from buyers, alongside a move back above its 200-day MA. That may then pave the way for the index to retest the 1,900 level next.

Asia Open

Asian stocks look set for a subdued open, with Nikkei -0.41%, ASX -0.07% and KOSPI -0.00% at the time of writing. Chinese equities have been lacklustre in the earlier session yesterday, and the purchasing managers index (PMI) releases this morning shows that market participants were right in staying cautious. The Nasdaq Golden Dragon China Index was down 1.3% overnight.

China’s November manufacturing PMI came in lower-than-expected (49.4 versus 49.7 forecast), reflecting a deeper contraction in manufacturing activities as continued weakness remains the takeaway. Non-manufacturing PMI has also softened to 50.2, heading to a different direction from the improvement to 51.5 which market participants were expecting. The confluence of the data brought the general PMI to another new low since January 2023. Still-weak data may see authorities laying more options of policy support on the table, while markets continue to seek for the conviction for a sustained recovery in the world’s second largest economy.

The Hang Seng Index (HSI) continues to trade in a descending wedge pattern, unwinding close to 70% of its reopening bounce from late last year. Its weekly relative strength index (RSI) remained below the key 50 level as a sign of sellers in control, with any breakdown of its October 2023 low ahead potentially supporting further downside to retest its October 2022 bottom. The weekly Ichimoku cloud zone remains a key resistance to overcome to provide conviction for an upward trend reversal. Until then, a continued subdued showing may persist into year end.

On the watchlist: Gold prices continue to hang near its six-month high

The upward revision in US 3Q GDP growth overnight failed to deter Fed rate-cut bets, as market sentiments continue to hang onto more recent Fed comments to price for 125 bp worth of rate cuts by end of 2024. With that, US Treasury yields followed through with its third straight day of decline, keeping gold prices stay supported at its six-month high, although gains were capped by some resilience in the US dollar.

Nevertheless, staying above its key psychological US$2,000 could keep the upward bias intact. With the yellow metal trading in a broad rectangle pattern since July 2020, the upper resistance at the US$2,070 level will be key to overcome for buyers, with any breakout of the range potentially leaving the US$2,274 level on watch over the longer term.

Wednesday: DJIA +0.04%; S&P 500 -0.09%; Nasdaq -0.16%, DAX +1.09%, FTSE -0.43%