Asia Day Ahead: Nikkei outperforms as Wall Street eyes tariffs

Growth sectors lead Wall Street performance

The start of the new week saw market participants inclined to take on risks, with a selective lean into growth sectors as tech stocks remain the primary drivers of Wall Street performance overnight. The upcoming speech from Nvidia’s CEO, Jensen Huang, may have maintained optimism, with momentum for Nvidia’s share price easing back to more neutral levels since November last year.

The event offers a catalyst for markets to reassess its future growth prospects and potentially initiate another fresh leg higher. CEO Jensen Huang is expected to express enthusiasm about the demand for its Blackwell chip, with the limiting factor being constrained supply, reaffirming the company’s earnings trajectory.

Tariff uncertainties impact US indices

Conflicting signals around Trump’s tariffs have led to some rollover in major US indices into the latter half of the session, revealing market sensitivity to any hints of Trump’s policies as his inauguration day draws nearer. Headlines suggesting that Trump’s tariffs may be more selective than broad indicate a toning down from his earlier promises.

While the Washington Post initially confirmed some market views that tariffs may be less aggressive than feared, Donald Trump was quick to dismiss it as “fake news.” His rhetoric around tariffs may remain tough, with potential negotiations down the line, but banking on less aggressive tariffs at this stage could seem premature.

Asia Open

Nikkei outperforms amid currency movements

The Asian session looks set for some opening gains, with the Nikkei +1.64%, ASX +0.28% and KOSPI +1.01% at the time of writing. The overnight dip in the US dollar may be well-received by risk-takers, while continued weakening in the yen may remain the key driver for the Nikkei’s outperformance. KOSPI has maintained its near-term bullish momentum, and while political risks persist, the initial reaction has subsided, with room for more policy support to uplift consumer and business confidence ahead, offering the basis for some dip-buying.

Nikkei eyes multi-month high amid bullish momentum

We prefer a focus on the Nikkei for now, which has been forming a series of higher lows amid an ascending triangle pattern over the past months. Buyers seem to be eyeing yet another retest of its horizontal resistance at the 40,220 level, marking a fifth attempt to push for a new multi-month high. Any subsequent move above the 40,220 level should pave the way towards its July 2024 high at the 42,500 level next.

Nikkei daily chart

Chinese equities face geopolitical challenges

Conversely, Chinese equities may continue to lag for now, as geopolitical risks remain a significant overhang. Further labelling of Chinese firms on the US military blacklist, such as Tencent and CATL, suggests that tensions are unlikely to ease soon, while uncertainty over Trump’s upcoming trade policies will likely keep risk-taking in check.

China A50 tests support

The China A50 index continues to trade within its rectangle formation, with the lower base at the 12,918 level being tested for the third time since October 2024. While there may be another attempt for buyers to hold the key horizontal support level, near-term momentum indicators remain bearish. Any breakdown of the 12,918 level could signal further downside towards the 12,300 level next, where a 76.4% Fibonacci retracement level stands.

China A50 daily chart