Asia Day Ahead: Japan 225 index attempts for a rebound

Asia Open

The Asian session is set for a positive open, with Nikkei +1.77%, ASX +0.50% and KOSPI +1.07% at the time of writing. Market participants took comfort in the weaker-than-expected US services Purchasing Managers’ Index (PMI) overnight, which offset the surprise rebound in manufacturing activities earlier in the week and suggest that overall demand may still remain tame for the Federal Reserve (Fed)’s inflation fight.

The US services PMI read for March came in at 51.4, far below the 52.7 expected. Notably, prices paid by businesses eased to 53.4 from previous 58.6, which marked its lowest level in two years. Alleviating pricing pressures in the services sector, which is predominantly deemed as the more sticky component for inflation, may offer policymakers room to consider earlier rate cuts.

While Fed Chair Jerome Powell largely stuck to his data-dependent stance overnight, he reiterated his view for lowering rates “at some point this year.” It seems to be a regurgitation of his usual script, but markets may find some reassurances in his words for impending rate cuts. US Treasury yields pared earlier gains to end the day lower, dragging the US dollar down 0.5% - a significant move that unwind all of its past week’s gains.

China, Hong Kong, Taiwan markets closed for holiday

Subdued Treasury yields, alongside a sharp weakening in the US dollar, may be cheered by risk sentiments across the region, but gains may still be capped by some reservations ahead of the upcoming US job report. Lighter volume may be expected with China, Hong Kong and Taiwan markets off for holiday as well.

Ongoing efforts to resume production at the Taiwan Semiconductor Manufacturing Company (TSMC)’s facilities may mark a quicker-than-expected recovery process, which offered some hopes that disruptions may be short-lived, although the eventual impact remains to be seen.

What to watch: Japan 225

The Japan 225 index is attempting to rebound, following a 4.5% retracement from its March 2024 peak. Its daily relative strength index (RSI) has managed to defend the key 50 level thus far, which still leaves buyers in control for the near-term upward trend. Since the start of the year, the index has not crossed below the mid-line, which leaves it as a key line to watch. On the upside, its year-to-date high at the 41,123 level will be immediate resistance to overcome. In the event of further retracement, a crucial level of support confluence may be at the 38,568 level, where its March low stands alongside its daily Ichimoku Cloud support.