Asia Day Ahead: Oil prices attempt to stabilise, China’s data in focus

Market Recap

Wall Street managed to inch higher overnight (DJIA +0.43%; S&P 500 +0.26%; Nasdaq +0.19%) but revealed somewhat of a breather after its post-Federal Reserve (Fed) surge, as clear profit-taking took hold towards the latter half of the session. Nevertheless, sector play still revealed broader risk-taking sentiments in place, as defensive sectors underperformed while economically-sensitive sectors pulled ahead. Notably, further catch-up performance was seen in the small-caps, with the Russell 2000 index adding another 2.7% overnight.

Market focus was on the US November retail sales, with a significantly higher-than-expected read (0.3% month-on-month versus -0.1% forecast) revealing clear resilience among US consumers. Coupled with the Fed’s recent dovish rhetoric, the data is likely to feed further into soft-landing hopes. Jobless claims data were better-than-expected as well, with the US labour market still on its gradual pace of easing without much of a recessionary trigger.

Treasury yields were broadly lower for the second straight day, but US two-year yields are showing some resilience with an attempt to bounce back from its June 2023 level. The US dollar was clearly weaker, touching its four-month low. One to watch may be Brent crude prices, which are attempting to stabilise lately after its massive sell-off with a near-term bullish divergence on moving average convergence/divergence (MACD). Nevertheless, greater conviction for an upside trend reversal may have to come from a move back above its 200-day moving average (MA) – a key trendline prices struggle to cross in November 2023 with OPEC+ meeting. A move above its Ichimoku cloud zone on the daily chart may be warranted as well.

Asia Open

Asian stocks look set for a muted open, with Nikkei +1.31%, ASX +1.02% and KOSPI +1.04% at the time of writing. The China Nasdaq Golden Dragon China index was up 1.2% overnight, revealing some attempt to tap on the broader risk-on environment for some near-term catch-up, but broader performance over the course of this year remains divergent from the rest.

Ahead, a series of economic data out of China will be on watch. Consensus is for China’s industrial production to improve to 5.6% from previous 4.6%. November retail sales is expected to bounce to 12.5% from previous 7.6%, while fixed asset investment is expected to tick marginally higher to 3% from previous 2.9%. Some degree of positive base effects may be at play, while market participants will continue to seek for the conviction of a bottoming in economic conditions over the coming months. Thus far, a lack of a discernible improvement in economic conditions has amplified calls for authorities to follow through with more policy support.

One to watch may be the China A50 index, which is back to retest its October 2022 low at the 11,100 level. A descending channel pattern seems to be guiding its drift lower over the four months, leaving an overall downward trend in place. Prices may attempt to defend the 11,100 level in the near term, coupled with oversold technical conditions but any upside may face a series of strong resistance overhead. This includes the upper channel trendline resistance, along with its Ichimoku cloud resistance on the daily chart.

On the watchlist: GBP/USD at new three-month high

While the Fed has laid out a dovish pivot for markets at its recent meeting, the same cannot be said for the Bank of England (BoE), with the central bank showing a more explicit pushback against rate cuts expectations. At the latest meeting, the BoE left its policy rate unchanged at 5.25% as widely expected, but reiterated that the monetary policy is likely to need to be restrictive for an "extended period of time".

The hawkish tone seems to be a contrast from the Fed, which saw the GBP/USD pushing to a new three-month high. For now, the series of higher highs and higher lows since October this year reveals an upward trend in place, with its relative strength index (RSI) trading above its key 50 level as well. Further upside may leave the next Fibonacci retracement at the 1.288 level on watch, while on the downside, the 1.272 level may serve as near-term support to hold.

Thursday: DJIA +0.43%; S&P 500 +0.26%; Nasdaq +0.19%, DAX -0.08%, FTSE +1.33%