Asia Day Ahead: September effect playing out? Nikkei, HSI on watch

Asia Open

The Asian session looks set for a weak start in today’s session, with Nikkei -3.58%, ASX -0.71% and KOSPI -2.41% at the time of writing. Chatters of September being one of the market's historically worst months have played out, in what seems to be brought by a confluence of tech sell-off and US growth concerns.

The unwinding in US growth stocks gained momentum overnight with Nvidia plunging 9.5%, alongside all other Magnificent Seven stocks in the red. That may trigger a shunning in Asian tech stocks as well, with eyes on Taiwan Semiconductor Manufacturing Company, SK Hynix and Samsung Electronics. Their outperformance across the region on the artificial intelligence (AI) hype since the start of the year may lead prices to be more sensitive to any sell-off with a magnified effect.

US manufacturing Purchasing Managers' Index (PMI) data has not brought much reassurances as well, which could lead global economic concerns to cast a shadow over the Asian session. At first glance, faster contraction in new orders and production, along with increasing prices, seems to be screaming for stagflation. Of course, such narrative still need to find more legs from other key inflation data, which has generally still been in the direction of disinflation so far. But for now, a lower-than-expected read in manufacturing PMI seems to renew memories of the early-August sell-off, with eyes now on key US labour conditions ahead.

With the US July unemployment rate pushing above the Federal Reserve (Fed)’s own projections for 2025 and 2026, a further rise in unemployment rate will likely exacerbate the risk-off sentiments. Expectations are for US August unemployment rate to come in at 4.2%, down slightly from the 4.3% prior.

Nikkei dragged more than 3% lower

The Nikkei has caved in by more than 3% in today’s session after finding some resistance at the 39,200 level. It has dipped below its 100-day moving average (MA) so far, with further downside likely to leave the 35,500 level on watch next, where an upward trendline coincides with its daily Ichimoku Cloud support. Its weekly relative strength index (RSI) is also facing some rejection off its mid-line as well, which could point to buyers losing some control. Failure for the 35,500 level to hold may potentially pave the way towards the 34,000 level next.

Hang Seng Index (HSI) on watch for further weakness

The HSI has a weak start to the month, giving back all of its last Friday’s gains as a disappointing profit warning from New World Development drives some shunning in property developers, with expectations that we could be looking at a wider fallout in the property space. There has not been much conviction around China’s economic recovery as well, with China’s economic surprise index hovering near its one-year low.

The index is facing near-term resistance around the 18,000 level, where its daily Ichimoku Cloud stands alongside an upward trendline resistance. Further downside may leave the 16,870 level on watch next, as its daily RSI currently heads back to retest the mid-line.