Asia Day Ahead: Fresh US tariff threats lifts US dollar, China’s PMI in focus

Asia Open

Following a holiday-shortened week in the US, the new week may see a pick-up in trading, with the economic calendar lined up with a series of US labour data, which will help to offer more cues around the Federal Reserve (Fed)'s next rate move. Thus far, the broad consensus for a 25 basis point (bp) December cut has been offering some market stability, so market participants will be hoping for little surprises at the upcoming US non-farm payrolls to avoid uncertainty around such pricing. Expectations are for a rebound in US job addition to 202,000 for November, while unemployment rate may tick higher to 4.2% from the 4.1% prior.

The new week sees the Asian session on a quiet start for now, with Nikkei +0.01%, ASX +0.21% and KOSPI +0.79% at the time of writing. There will likely be some mixed reaction to fresh tariff threat from US President-Elect Donald Trump over the weekend, this time with BRICS nations under his crosshair to drive their commitment to not create a currency alternative to the US dollar.

Similar to earlier tariff threats, how much of the 100% tariff will be followed through remains a question, and it is clear that Donald Trump is using tariffs as a main weapon to push through his various political aims. Creating a new BRICS currency will present its own set of challenges, given the trade imbalances and varying economic dynamics among its members, so we are unlikely to see it materialise anytime soon. But while the 100% tariff floated may likely be just a warning for now, any mention of tariffs may prompt an immediate upside reaction in the US dollar, offering room for it to stabilise following last week’s unwinding.

China’s Purchasing Managers' Index (PMI) shows glimmer of hope, but can it sustain?

Fresh PMI data out of China once again reflect some degree of policy success from recent stimulus measures, with manufacturing PMI expanding slightly stronger at 50.3 (est 50.2, 50.1 prior). However, weak domestic demand remains a key overhang, with services PMI underperforming at 50.0 (est 50.4).

The Caixin read will be in focus this week, which will reflect economic activities around smaller private-sector companies. The October read has revealed some green shoots, where the manufacturing PMI rose to 50.3 from the 49.3 prior, and marked a return to expansion. The Caixin services PMI has improved to 52.0 from the 50.5 prior as well, so market participants will want to see further signs of recovery to regain some confidence.

While any upside surprises may help to offer room for Chinese equities to stabilise, risk-taking is likely to be limited, given the uncertainty of tariffs from the US and question over whether the economic momentum can sustain without a stronger net fiscal injection from authorities thus far.

Near-term drift in Hang Seng Index following November sell-off

The Hang Seng Index (HSI) is attempting to stabilise lately, with the index still trading within a falling wedge pattern for now. Near-term, we may have to see a move back above the key psychological 20,000 level in order to reflect buyers in greater control. Otherwise, a continued drift lower may be the story here if the falling wedge stays in place. For now, its daily relative strength index (RSI) is back to retest its mid-line, with any failure to cross above likely to reinforce its near-term downward bias, which may leave its November low on watch at the 18,960 level.