Asia Open: Hang Seng Tech nears October 2024 high

Wall Street Wrap

It was another mixed session on Wall Street overnight, with market participants seeking shelter in value while paring back exposure in the growth sectors. Higher Treasury yields off the back of hawkish rhetorics from Federal Reserve (Fed) Chair Jerome Powell could form some basis for the swing. While his stance that US policymakers “do not need to be in a hurry” in raising rates may be largely expected, the confirmation still carries weight in anchoring rate expectations. Markets continue to look for a Fed rate cut only towards the second half of this year, with a slightly more hawkish tilt following Powell’s call for patience.

In sector performance, consumer staples topped the table with a 0.9% gain, while the energy sector (+0.76%) received a boost as well. On the other hand, the consumer discretionary sector (-1.2%) was dragged down by a 6.3% drop in Tesla’s share price.

Risk-taking appetite remains broadly intact, with eight out of the 11 S&P 500 sectors in the green. However, tariff risks ought to be monitored, being the key overhang which kept major US indices within a consolidation range over the past week. The 25% US tariff on steel and aluminium would come into force on 12 March, but there is some runway for negotiations and market participants are still finding some scepticism over the extent to which it will be enforced.

US consumer price index (CPI) in focus

Market focus now turns to the upcoming US inflation report. Barring any surprises, the data is unlikely to significantly alter rate expectations. Consensus forecasts a 0.3% month-on-month increase in both headline and core inflation, signalling persistent pricing pressures that should support the Fed’s cautious stance in the near term. Any higher-than-expected reading could support the US dollar while pressuring equities, amid concerns that tariffs may further complicate the inflation outlook.

US Dollar struggles for now, as trendline support faces another test

The weakness in the US dollar seems to reflect market pricing that some consensus or exemptions may be reached on the US tariff front and the eventual impact may not be as bad as feared. Following a slight bounce off a trendline support over the past week, the US dollar is unable to follow through with its bullish momentum for now.

The trendline support will be on watch for some defending ahead, with a move above the 108.26 level likely to reflect buyers taking greater control. That will offer the conviction for longs, with a potential push towards the 109.81 level. On the other hand, bearish conviction will come from any dip below the 106.88 level – a level which has supported the dollar on two previous occasions, which may leave the 105.40 level on watch next.

Asia Open

The Asian session looks set to track Wall Street in delivering a mixed session, with the Nikkei +0.23%, ASX +0.09% and KOSPI -0.02% at the time of writing. Economic calendar is generally light, which leaves attention on a slew of corporate earnings to dictate the general drift. The Nasdaq Golden Dragon China Index was down close to 1.7% overnight, with the recent stellar run in Chinese equities seemingly calling for some near-term profit-taking.

Notably, the Hang Seng Tech Index is now nearing its October 2024 closing top at the 5,315 level, which may face a test of resistance, while its daily relative strength index (RSI) treads in overbought territory for the first time in four months. That said, the formation of a higher low will be closely watched in the event of a retracement, which may offer dip-buying opportunity. One may watch for any bullish support around the 4,942 level or when its daily RSI moderates back to the neutral 50 level.

Japan’s Nikkei still within broad indecision

Japan markets come back online after its holiday break but movement has been subdued, potentially with US tech caution offsetting the tailwind from a weaker yen. The index remains within a broad consolidation range, with the struggle for a clear direction. While economic conditions have been supportive, the prospect of a more hawkish Bank of Japan (BoJ)—amid rising inflation and stronger wage pressures—continues to temper sentiment. A decisive break above the 40,220 level may be needed to reignite bullish momentum.