Asia Day Ahead: are Asian markets prepared for volatility after fresh US tariff threats?

US labour data and Federal Reserve outlook

Following a holiday-shortened week in the US, trading may pick up in the new week as market participants turn their attention to a series of US labour data. These reports are expected to provide further cues on the Federal Reserve’s (Fed) next rate move. Currently, there is broad consensus for a 25 basis point (bp) rate cut in December, which has lent some stability to the markets. Investors will be closely monitoring the upcoming US non-farm payrolls data, with expectations for a rebound in job additions to 202,000 in November. However, the unemployment rate is anticipated to edge higher to 4.2% from the previous 4.1%.

Asian markets start the week quietly

The Asian session has begun on a relatively quiet note, with the Nikkei up 0.01%, the ASX rising 0.21%, and the KOSPI gaining 0.79% at the time of writing. Market sentiment may face mixed reactions to fresh tariff threats from US President-elect Donald Trump over the weekend. This time, the threats target BRICS nations, pressuring them to avoid creating a currency alternative to the US dollar.

The feasibility of a new BRICS currency is questionable, given the trade imbalances and diverse economic conditions among member countries. While the proposed 100% tariff may be more of a warning, any mention of tariffs tends to prompt immediate upward movement in the US dollar. This could provide room for the currency to stabilise after last week’s fluctuations.

China’s PMI data offers mixed signals

Fresh Purchasing Managers' Index (PMI) data from China show some signs of success from recent stimulus measures. The manufacturing PMI expanded slightly to 50.3 (est 50.2, prior 50.1), but domestic demand remains weak, with the services PMI underperforming at 50.0 (est 50.4).

This week, focus will shift to the Caixin PMI readings, which provide insights into smaller private-sector companies. October’s data showed encouraging signs, with the manufacturing PMI returning to expansion at 50.3 (prior 49.3) and the services PMI improving to 52.0 (prior 50.5). Further signs of recovery may boost confidence in Chinese equities. However, risk-taking is likely to remain constrained amid ongoing tariff uncertainties and questions about whether the current economic momentum can be sustained without additional fiscal support.

Near-term drift in Hang Seng Index following November sell-off

The Hang Seng Index (HSI) is attempting to stabilise lately, with the index still trading within a falling wedge pattern for now. Near-term, we may have to see a move back above the key psychological 20,000 level in order to reflect buyers in greater control. Otherwise, a continued drift lower may be the story here if the falling wedge stays in place. For now, its daily relative strength index (RSI) is back to retest its mid-line, with any failure to cross above likely to reinforce its near-term downward bias, which may leave its November low on watch at the 18,960 level.

Hong Kong daily chart