Asia Day Ahead: Focus on US Jobs Report, Gold Holds Channel Support

Asia Open

The Asian session is set for a slightly mixed open, with the Nikkei -0.63%, ASX -0.05% and KOSPI +0.38% at the time of writing. The US markets were closed overnight to observe National Day of mourning for former president Jimmy Carter, but a sea of red across US equity futures this morning may be a source of caution for risk appetite in the region, alongside the recalibration of exposure in the lead-up to the upcoming key US job data.

Following a sharp dip since the start of this year, price action in Chinese equities are now in a near-term state of consolidation. Any attempts to bounce still seem feeble however, as sentiments remain fragile around weaker economic data. China’s inflation data took centre stage yesterday, and while consumer prices matched market consensus at 0.1% year-on-year, the still-subdued read offered little encouragement with lingering deflation risks. Focus remains on any upcoming consumption-driven stimulus to spur domestic demand, but with Chinese authorities taking on a reactive policy stance to US pressures, more stimulus clarity remains some way off.

The near-term risks to the Hang Seng Index (HSI) will come with any move below its November 2024 low at around the 19,000 level, which may mark a lower low within its descending wedge formation. But in that case, we will look towards the 18,000 level as a key level of support, where a broader upward trendline will come into play to determine if much bearishness has already been priced and buyers are looking for a more concrete bounce.

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

Attention will no doubt be on the US non-farm payrolls data as the main key risk event ahead. Consensus is looking for 164,000 US job additions for December, while unemployment rate is expected to be maintained at 4.2%, in line with the Federal Reserve (Fed)’s economic projections. Wage growth may grow at 0.3% month-on-month, slightly easing from the 0.4% prior.

Little deviation from consensus may offer Wall Street the calm it needed, given that stronger economic data may not necessarily translate to increased risk-taking as seen with stronger ISM services Purchasing Managers' Index (PMI) data this week. With early chatters of inflation risks resurfacing in 2025 with US reflation and Trump 2.0, stronger job gains may reignite such concerns, suggesting that market reaction to any significant deviation from consensus may be volatile and not as clear cut. Any stronger job read may see Fed rate expectations lean further towards the hawkish view of just one rate cut this year, which could see the US dollar well-supported with Treasury yields higher, and that may come with some trade-off in equities’ performance.

Gold prices drift higher, but US$2,720 level on watch as critical resistance

A stronger US dollar and higher Treasury yields on more hawkish Fed expectations have been taken in stride by gold prices lately, which saw an upward drift to a three-week high. This validates the US$2,610 level as a key support confluence, where a lower trendline support stands in place.

That said, the US$2,720 level will be closely watched as critical resistance ahead, with the level twice rejecting price advances since November last year. Overcoming this level may suggest buyers taking on greater control and could see prices eye for a new all-time high within the broader rising channel formation.