Asia Day Ahead: focus on US jobs report, gold holds channel support

Asia Open

The Asian session is poised for a slightly mixed start, with the Nikkei -0.63%, ASX -0.05% and KOSPI +0.38% at the time of writing. US markets were closed overnight to observe a national day of mourning for former President Jimmy Carter. However, a sea of red across US equity futures this morning may signal caution for risk appetite in the region, particularly with the recalibration of exposure in the lead-up to upcoming key US job data.

Chinese equities show signs of consolidation

Following a sharp decline since the start of this year, price action in Chinese equities is now in a near-term state of consolidation. Attempts at a rebound appear feeble, as sentiments remain fragile due to weaker economic data. China’s inflation data took centre stage yesterday, matching market consensus at 0.1% year-on-year.

However, this subdued reading offered little encouragement, with lingering deflation risks still present. Focus continues on potential consumption-driven stimulus to spur domestic demand, but with Chinese authorities adopting a reactive policy stance to US pressures, further clarity on stimulus measures may be some way off.

HSI faces near-term risks

The near-term risks for the Hang Seng Index (HSI) will arise if it moves below its November 2024 low of around 19,000, which may indicate a lower low within its descending wedge formation. In such a case, the 18,000 level will be a key support level to watch, where a broader upward trendline will determine if significant bearishness has already been priced in and if buyers are poised for a more concrete bounce.

Hong Kong HS50 daily chart

All eyes on US non-farm payrolls data to end the week

Attention will undoubtedly be on the US non-farm payrolls data as the main key risk event ahead. The consensus is projecting 164,000 US job additions for December, with the unemployment rate expected to remain steady at 4.2%, in line with the Federal Reserve's (Fed) economic projections. Wage growth is anticipated to grow at 0.3% month-on-month, slightly easing from the prior 0.4%.

A little deviation from the consensus may provide Wall Street the calm it needs, given that stronger economic data does not necessarily translate to increased risk-taking, as evidenced by the stronger ISM services Purchasing Managers' Index (PMI) data this week. With early discussions of inflation risks resurfacing in 2025 due to US reflation and Trump 2.0, stronger job gains could reignite such concerns, suggesting that market reactions to any significant deviation from consensus may be volatile and unpredictable.

Any stronger job report may lead Fed rate expectations to lean further towards the hawkish view of just one rate cut this year, potentially supporting the US dollar with higher Treasury yields, which could impact equities’ performance.

Gold prices drift higher, but $2720 level on watch as critical resistance

A stronger US dollar and higher Treasury yields, fuelled by more hawkish Fed expectations, have been taken in stride by gold prices, which have drifted to a three-week high. This affirms the $2610 level as a key support confluence, where lower trendline support stands firm.

However, the $2720 level will be closely watched as a critical resistance point ahead, with the level twice rejecting price advances since November last year. Overcoming this level may suggest buyers are taking greater control and could see prices aiming for a new all-time high within the broader rising channel formation.

Gold daily chart