Asia Day Ahead: Cautious lead-up in place, Australia’s inflation on watch

Asia Open

The Asian session looks set for a weak start in today’s session, with Nikkei -0.07%, ASX -0.10% and KOSPI +0.18% at the time of writing. Overnight, Wall Street traded the way as expected – a subdued session reflecting a cautious lead-up to Nvidia’s results, which is likely to be mirrored in the Asian session as well.

Nvidia’s results will be looked upon as a make-or-break moment for global markets, given the extreme optimism priced around artificial intelligence (AI) stocks over the past year and the technology sector doing the heavy-lifting for indices’ gains. Its share price currently hanging around recent high suggests expectations in place for the AI darling to deliver yet again, which may also set the stage for some aggressive unwinding in the event of any negative surprises.

The US dollar failed to see much pick-up as US Treasury yields stay suppressed, which is unlikely to offer much cues for risk sentiments in the region. The Nikkei has been stuck in near-term consolidation mode over the past week, hanging just below its 100-day moving average (MA), seemingly on wait for a decisive catalyst to induce a break.

The Hang Seng Index (HSI) may be worth keeping an eye on, extending its gains to a one-month high. Higher-than-expected China’s industrial profits yesterday may be promising but not stellar, and any weaker showing in economic data up ahead could still pose a hurdle for sentiments. China’s official Purchasing Managers' Index (PMI) read for August will be released this Saturday.

Look-ahead: Australia’s inflation

Attention ahead will be on Australia’s inflation data, given that there seems to be a detach in rate expectations between market participants and policymakers. The Reserve Bank of Australia (RBA) Governor Michele Bullock has clearly leaned hawkish with her previous comments, highlighting the potential upside risks of inflation and pushing back against near-term rate cuts.

Expectations are for Australia’s monthly consumer price index (CPI) to come in at 3.4%, down from previous 3.8%. Some progress may be attributed to the federal government's energy rebates, so if anything, markets may be looking for any below-consensus read to have a significant sway on rate outlook.

ASX 200 keeping its upward bias intact

A look at the ASX 200 reveals that its broader upward trend remains intact, having recovered back near its record high after bouncing off its 200-day MA firmly on 5 August 2024. The strong dip-buying kept its weekly relative strength index (RSI) above its mid-line, which suggests buyers in control. The index may eye for a retest of its record at the 8,171 level, with any successful break likely to pave the way towards the 8,454 level next on Fibonacci extension. On the downside, the 7,936 level may serve as immediate support to hold.