Asia Day Ahead: Risk sentiments look to recover, while rally in oil prices cools

Asia Open

The Asian session looks set for a positive start to the new week, with Nikkei +1.33%, ASX +0.26% and KOSPI +0.14% at the time of writing. This comes as Wall Street took the robust US March job report in stride to end last week, choosing to focus on the fact that further resilience in economic conditions may support the corporate earnings recovery and looking beyond the usual pushback against earlier rate cuts.

US Treasury yields spiked higher on the high-for-longer rate narrative with the recalibration of dovish rate expectations, but the usual inverse relationship with the equity markets has not been playing out since the start of the year. Nevertheless, the stronger labour data should further validate the Federal Reserve (Fed)’s calls for having “little urgency to cut rates”.

As risk sentiments look to bounce from earlier jitters, gains may still be somewhat limited however, as the lead-up to the key US consumer price index (CPI) this week could leave some reservations in place. With Fed Chair Jerome Powell attributing higher-than-expected CPI read in January and February to a 'bumpy path' in inflation towards its 2% target, another round of inflation persistence could challenge his views on inflation progress.

Economic data to digest: Japan’s average cash earnings

Economic data this morning saw Japan’s average cash earnings eased to 1.8% in February, down from previous 2.0%. In real terms, wages has registered a sharper contraction to -1.3% from previous -1.1%, due to more persistent growth in consumer prices in February. This may keep the Bank of Japan (BoJ) on further wait-and-see at the upcoming April meeting, opting for a policy hold until the impact of the recent 'shunto' wage negotiations is reflected in upcoming data to offer any room for further rate hikes.

What to watch: Brent crude prices face profit-taking as geopolitical tensions cool

Easing geopolitical tensions in the Middle East has put a pause to the recent oil prices’ rally to start the week, as Israel’s withdrawal of some troops from southern Gaza and commitment to talks on a potential ceasefire offered grounds for some profit-taking. This comes as its daily relative strength index (RSI) eased from near-term overbought conditions back into neutral territory.

For now, the higher highs and higher lows may still leave the broader upward trend intact, with one to watch for the US$87.00 level as a potential line of support. On the weekly chart, prices have closed above its weekly Ichimoku Cloud resistance for the first time since August 2022, which may still potentially offer room for the upward trend to play out.