Asia Day Ahead: Nikkei facing test at 100-day MA, STI hanging at month-to-date high

Asia Open

The Asian session looks set for a weaker start in today’s session, with Nikkei -0.65%, ASX -0.47% and KOSPI -0.81% at the time of writing. The gruelling wait for Nvidia’s results is over and with sky-high expectations baked into its valuation, its results faced some disappointment in after-market trading.

To be fair, the company’s 2Q top and bottom line did beat estimates handily and its forward guidance for 3Q revenue of US$32.5 billion was also higher than analysts' average estimate of US$31.77 billion. But perhaps investors have just been accustomed to it crushing expectations over the past 2 years and are clearly wanting more. Some views were looking for 3Q revenue to come in as high as US$37.9 billion, while production problems with its next-gen Blackwell chip were also a dampener.

Nevertheless, we may expect Nvidia’s results to be just a short-term blip in the market, where its stock price may call for some re-rating in the near term and there are now more excuses for investors to rotate away from outperforming tech into other laggard sectors. Of course, market seasonality in September may also prove challenging but it will have to take more to reverse the broader upward trend in the equity markets, given built-in optimism around Federal Reserve (Fed)’s policy easing and a soft landing.

Across the region, it is a quiet economic front on the calendar and we are seeing Asian indices regaining some footing from its market-open dip, as sentiments seem to settle down from Nvidia’s scare. Investors can look towards some potential warming of ties on the geopolitical front, as Chinese and United States officials discussed holding fresh talks between Presidents Joe Biden and Xi Jinping in the near future. Whether the talks can breed concrete results remain to be seen however, given that the upcoming US elections may still warrant a tough stance on China and issues around Taiwan and trade tariffs are likely to persist, but at least any slight step taken in improving bilateral ties will be welcomed for now.

Nikkei holding firm above support

Thus far, the Nikkei has been trading firmly above the 37,877 level of support and is seeking to challenge the 38,800 level, which marked some resistance by being the high of its 1 August sell-off and is also where its 100-day moving average (MA) currently stands. The strength in the Japanese yen may seem to offer some near-term headwinds, but buyers have still been broadly holding up, with the index trading in a near-term consolidating phase after a 26% recovery from its 5 August low. Another leg higher could see the index eye for a retest of the 40,500 level next. On the downside, failure for the 37,877 level of support to hold could pave the way towards the 36,452 level next.

Straits Times Index (STI) hanging near month-to-date high

The STI has also been trading around its month-to-date high but will likely find some near-term resistance at the 3,400 level, which marked its January and August 2023 highs. Any successful break above the 3,400 level may potentially pave the way for the index to retest its year-to-date high at the 3,500 level next. On the downside, the 3,330 level may be key support to hold, where its 100-day MA may stand.