Asia Day Ahead: Where’s next for China A50?

Asia Open

The Asian session looks set for a slight drift higher in today’s session, with Nikkei +18%, ASX +0.64% and KOSPI +0.13%. Overnight, Wall Street faced another day of unwinding in tech, with artificial intelligence (AI)-darling Nvidia entering correction territory being the key story. That said, nine of the 11 S&P 500 sectors ended the day in the green, which suggests that market sentiments continue to lean towards risk-taking but is more of near-term positioning readjustment in place. The rotation towards value may potentially help to offer some support for the region (except growth-sensitive ), accompanied by a weaker US dollar and a tick lower in US Treasury yields.

Attention will continue to revolve around the Japanese yen as well, with the USD/JPY trading just shy of the previous intervention level of 160.20. Further jawboning has resurfaced from Japan's top currency diplomat, Masato Kanda, but as per past instances, verbal impact will likely be limited in capping the yen weakness in the absence of more concrete action. The recent Bank of Japan (BoJ) minutes do show that policymakers have left the door open for a rate hike in July. If it materialises, that will have a greater impact in driving the yen strength.

The Nikkei is slightly higher in today’s session, but the subdued gains do not offer much conviction of a sustained turnaround yet as the index treads in its broad consolidation state. Caution around upcoming BoJ policy settings may remain in place, as policymakers leaned slightly hawkish in the minutes. The Hang Seng Index (HSI) managed to stay afloat above its June low, with some rotation to laggards potentially helping to drive some positive inflows in the near-term.

China A50: Bullish momentum abates with index dipping below support confluence

The China A50 index has retraced more than 7% since May this year, with a recent break below a rising channel pattern and its daily Ichimoku Cloud support suggesting some near-term weakness in place. A look at its daily relative strength index (RSI) also reflects a move back below is mid-line, which suggests near-term downward momentum. Any bounce may have to overcome the 12,300-12,400 range to offer more conviction of buyers taking control. Otherwise, a further drift lower may seem to be the likely story, which may leave the 11,600 level on watch as crucial support.