Asia Day Ahead: Reservations ahead of FOMC minutes, Nvidia’s earnings

Market Recap

Caution kicked in for Wall Street overnight ahead of Nvidia’s earnings, as market participants de-risk from the artificial intelligence (AI) darling to guard against any negative surprise, given that the rally in its share price has left little room for error for its upcoming results. Or perhaps the memories from its previous 3Q 2023 release are still fresh in traders’ minds, where the company crushed both top and bottom-line estimates but there is a sell-the-news movement that followed after.

Nvidia is dragged 4.4% in the red, while the other Magnificent Seven stocks were broadly lower as well. Tesla is down 3.1% and Amazon is down 1.4%. US Treasury yields remain broadly in its near-term consolidation, with the two-year yields slightly lower by 3.2 basis points (bp). The US dollar (-0.3%) continues to falter, but a display of higher highs and higher lows since December 2023 suggests that it can still be too early to dismiss its upward trend for now.

There has not been much to move the dial around interest rate expectations yesterday. The only economic data of note comes from the US leading index (-0.4% month-on-month versus -0.3% forecast), which removes its US recession call but “expects real gross domestic product (GDP) growth to slow to near zero percent over Q2 and Q3.” While that may support the soft-landing view, the market rally thus far seems to be pricing for a much stronger rebound in economic activities compared to the “zero percent” growth in the coming quarters – something to watch ahead.

The US dollar has failed to follow through with its post-US consumer price index (CPI) surge thus far, but are retesting its key 200-day moving average (MA) as a line of support. Its daily relative strength index (RSI) is also back at the 50 level, which may call for some defending from buyers in order to retain its near-term upward trend. Failure for the 200-day MA to hold may pave the way towards the 102.30 level, while on the upside, its year-to-date high at the 104.60 level will be a target to overcome for buyers.

Asia Open

Asian stocks look set for a negative open, with Nikkei -0.15%, ASX -0.72% and KOSPI -0.44% at the time of writing, following the cautious handover from Wall Street. It is more of a wait-and-see now, with the upcoming Federal Open Market Committee (FOMC) minutes and Nvidia’s 4Q earnings serving as key market risk events to pave the way for market direction next.

The more-than-expected 25 bp cut in China’s five-year loan prime rate (LPR) to 3.95% has been the headline yesterday, but the move was met with some market reservations given the limited success of previous cuts. Nevertheless, it highlights Chinese authorities’ commitment to shore up the property market and lift overall growth, although market participants will still want to see policy measures translate to a sustained economic recovery for more conviction into Chinese equities.

The economic data front brought higher-than-expected January exports from Japan (11.9% year-on-year versus 9.5%), but that was balanced with disappointment in imports while the Reuters Tankan Index fell into negative territory for the first time since April 2023. That may suggest an uneven recovery for now, and with the country’s recent slip into technical recession territory, it may put policymakers on some reservations for any policy moves in March.

The USD/JPY continues to hover around the key psychological 150.00 level, with buyers stopping on their tracks for now, given that there was a previous round of currency intervention at this level back in October 2022. While intervention warning from authorities has been revived lately, any failure to see any concrete follow through could still lead to eventual shrugging off. Near-term, an ascending wedge formation seems to be in place, with one to watch for any breakout on either side.

On the watchlist: EUR/GBP attempting to defend 2023 lows

Market expectations are broadly priced for the European Central Bank (ECB) and Bank of England (BoE) to cut rates in June, with slightly more easing to come from the ECB given its inflation progress. Four 25 bp cuts by the end of 2024 are the broad consensus, versus the three cuts priced for the BoE. The slightly differing policy outlook has led the EUR/GBP to be sold off as much as 2% since the start of the year, but there are some signs of stabilisation lately as the pair attempts to defend its 2023 lows at the 0.8515 level.

Its daily RSI is also back at the key 50 level, with any reversion above 50 potentially aiding to support further near-term upward bias. The recent high at the 0.8576 level may serve as immediate resistance, overcoming it may pave the way to retest the 0.8618 level, where a strong resistance confluence is found from the daily Ichimoku cloud, alongside various MAs (100-day, 200-day).

Tuesday: DJIA -0.17%; S&P 500 -0.60%; Nasdaq -0.92%, DAX -0.14%, FTSE -0.12%