Asia Day Ahead: China’s Caixin PMI surprises, while oil prices failed at 200-day MA

Market Recap

Wall Street performance was more mixed overnight, with the Nasdaq (-0.2%) seeing some slight profit-taking while more notably, the DJIA has surged 1.5% - a whopping 520 points upmove to trigger a new year-to-date high. A significant 9.4% gain in Salesforce share price may account partly for the surge, with its better-than-expected 3Q earning results fuelling the optimism.

The US core personal consumption expenditures (PCE) price data release overnight showed that US inflation continues to moderate, with both headline and core pricing pressures in line with market expectations at 3% and 3.5% year-on-year growth respectively. But given the dovish pricing for rate expectations already in place (125 basis point (bp) cuts priced through 2024), the data largely served as a validation for inflation progress and failed to trigger much of a positive move in Wall Street.

The US dollar did gain 0.8% overnight, but failure to overcome its key 200-day moving average (MA) ahead may still keep the downward bias intact. The AUD/USD may be on watch, with the pair attempting to bounce off its 200-day MA lately. Further upside may leave the 0.676 level in sight for a retest, where a resistance confluence stands from its weekly Ichimoku cloud zone. The pair has failed to overcome its weekly cloud resistance on at least four occasions since February 2022, leaving any upward break as a key conviction move for a potential trend reversal.

Asia Open

Asian stocks look set for a weaker open, with Nikkei +0.09%, ASX -0.42% and KOSPI -0.69% at the time of writing. A series of manufacturing purchasing managers index (PMI) data in the region may provide an optimistic take on economic conditions, with an improvement seen in Indonesia, Philippines, South Korea, Taiwan and Thailand in November from a month ago.

Following the disappointing read in China’s official PMI yesterday, the Caixin PMI data has provided a more optimistic view, with manufacturing PMI registering a 50.7 read versus the 49.8 consensus. The return to expansion may help to calm some nerves around China’s on-and-off recovery momentum, although a sustained recovery trend will still need to be seen to provide the conviction that the worst is indeed over.

Aside, the Straits Times Index continue to remain lacklustre, as an initial attempt to bounce at the start of November failed to find much follow-through. A broader descending wedge formation seems to be in place for now, with the series of lower highs and lower lows since July 2023 validating the prevailing near-term downward trend. Further downside may leave the key psychological 3,000 level on watch ahead, while market participants will attempt to seek for any upward break of the wedge formation to find some conviction of greater control from buyers.

On the watchlist: Oil prices failed to sustain above its 200-day MA once more

The conclusion of the recent Organization of the Petroleum Exporting Countries (OPEC+) meeting brought an additional one million barrel-a-day cut to the table but the decision to deepen cuts failed to convince, with oil prices plunging 2.7% overnight. The voluntary nature of additional output cuts may provide less affirmation behind the decision, which may drive some unwinding of previous gains that were pricing for more forceful action.

With the overnight sell-off, Brent crude prices have failed to sustain above its 200-day MA for the third occasions since November this year. The key MA trendline will serve as immediate resistance to overcome, which seems to coincide with the neckline of an inverse head-and-shoulder formation as well. For now, the downside bias seem to remain, with further downside potentially leaving the November low on watch for a retest.

Thursday: DJIA +1.47%; S&P 500 +0.38%; Nasdaq -0.23%, DAX +0.30%, FTSE +0.41%