Asia Day Ahead: Yen strengthened, China’s economic data on watch

Asia Open

The Asian session looks set to round off the week with some calm, with Nikkei -0.26%, ASX +0.71% and KOSPI +0.24% at the time of writing. This follows after the fourth straight day of gains in Wall Street overnight, in what seems to be a strong overturn of the early-September jitters. Tech stocks regained ground, while the higher-than-expected read in the US producer price index (PPI) failed to dent the risk rally much, as components that feed into the Federal Reserve (Fed)’s preferred inflation gauge (Personal Consumption Expenditures (PCE) Price Index) were soft.

Nevertheless, it may still be too early to declare a decisive victory over inflation just yet, which suggests that the Fed will tread carefully in easing its policies next week (25 basis point (bp) cut) and likely lean to its data-dependent stance for subsequent moves. Inflation remains above target, overall US producer prices saw a slight pick-up in pace, while the recent “supercore” consumer prices were little tamed as well.

The Japanese yen strengthened in today’s session, with the USD/JPY back to eye for its December 2023 low, which seems to explain why Japanese equities’ gains are capped in today’s session. The Bank of Japan (BoJ) is not expected to make any rate move at its meeting next week, but there may be some hawkish pricing brewing for policymakers to lay the groundwork for further rate hikes in December and beyond. You can read more about our preview here: https://www.ig.com/sg/news-and-trade-ideas/bank-of-japan--boj--preview--clues-to-be-sought-on-the-timing-fo-240911

China’s economic data on watch

The day ahead will leave China’s new loan data on watch, which is expected to show a bounce from July’s blip but remained low on relative terms at 1.02 trillion yuan. Weak credit demand amid the subdued spending among consumers and businesses may be reinforced, which may continue to put eyes on China authorities for more support in order to meet its gross domestic product (GDP) growth target this year. Time seems to be running short, and failure to meet its own growth target may send a signal to markets that its policy hands are tied in uplifting growth, which may offer little reassurances for investors.

We will have its ‘data dump’ over the weekend as well, with further weakening expected across all three fronts. Industrial production is expected to ease to 4.7% year-on-year from 5.1% prior, retail sales may edge lower to 2.5% from 2.7% prior, while fixed asset investment may tick lower to 3.5% from 3.6% prior.

ASX 200 eyes for a new record high

Attention in today’s session may revolve around the ASX 200, with all eyes on whether it can push to a new record high. The broader upward trend remains in place, with the index trading above various trend indicators (moving averages (MAs), daily Ichimoku Cloud), but will have to face off against its August resistance at the 8,171 level.

A new record close could validate the fact that buyers are in strong control, which could pave the way towards the 8,300 level where an upward channel trendline may stand. Failure to cross the August high could call for a breather towards the 7,936 level, which is likely to offer some support for a formation of a new higher low before eyeing its next attempt.