Asia Day Ahead: HSI struggles, while selling pressures for Nikkei 225 abate

Asia Open

The Asian session looks set for a more subdued start, with Nikkei +0.18%, ASX -0.13% and KOSPI -0.02%. While we have a positive handover from Wall Street, some gains were pared into the later half of the session, while the VIX ended the day up 5.3%, in what should generally be an inverse relationship with the indices. That may reflect some near-term caution amid the current risk rally.

The aftermath of the Donald Trump’s assassination attempt over the weekend saw the US dollar firming by 0.2% and longer-term Treasury yields higher, likely as a reaction to the increased odds of a Trump presidency. That may potentially cap some gains in the Asian session today, while sentiments continue to digest the slew of weaker economic data presented in China yesterday. You may read more on the details here: https://www.ig.com/sg/news-and-trade-ideas/mixed-front-in-chinas-economic-data--hsi-edging-lower-240715

Chinese equities were broadly lower yesterday, with downside surprises in recent data raising more doubts on its recovery. The Hang Seng Index (HSI) was down 1.5% in yesterday’s session, but one may still argue that a near-term downward trendline support may still be on watch. Its daily relative strength index (RSI) is back at its 50 level, which may have to see some defending ahead.

Look-ahead: US retail sales

Economic data ahead may leave the US retail sales in focus. Current expectations are pointing to a more subdued state for US consumers, with June retail sales to turn in flat month-on-month, down from previous 0.1%. That may continue to reinforce market expectations for a September rate cut from the Federal Reserve (Fed).

Overnight, Fed Chair Jerome Powell continued to lay the groundwork for upcoming policy easing, acknowledging that recent inflation progress “add somewhat to confidence” that inflation is on track to return to target.

Recent dip in Nikkei 225 index on watch for some defending

Following a 3% retracement over the past week, the Nikkei index is attempting to stabilise around the 41,160 level, which will have to see some defending from buyers. This is because on the weekly chart, a bearish shooting star candlestick is being presented last week and any close below last week’s low may potentially draw technical sellers to weigh on the index further in the near term.

At least for now, selling pressures seem to be abating, marked by the smaller red candles. Its daily RSI has also eased from previous overbought conditions into more neutral territory. On the upside, the recent high at the 42,511 level will be on watch as resistance to overcome. Should the 41,160 level be broken down, the 39,500 level may be on watch for any formation of a new higher low, where an upward trendline support may stand.