Asia Day Ahead: China’s inflation data disappoints, oil prices at its three-month low

Market Recap

Wall Street did not get much cues on monetary policy outlook from Federal Reserve (Fed) Chair Jerome Powell’s speech overnight, which translated to a mostly flat session as market participants attempt to seek out new catalysts to follow through with its recent risk rally.

The takeaway from the Fed Chair is to be more flexible on economic forecasting, especially during times of ‘unpredictable shocks’, but his words clearly fell short of a direct guidance of growth risks for the US economy. He will be speaking again once more today, which remains the focus for markets amid the quiet economic calendar.

US Treasury yields struggled to see any pick-up, with the US 10-year yields flirting with the 4.50% level on a stronger-than-expected auction demand, while the US dollar managed to hold firm. On the other hand, gold prices continue its drift lower, following the breakdown of its head-and-shoulder neckline on the four-hour chart as mentioned yesterday. The VIX also declined for the eighth straight day, which points to market participants pricing out less market uncertainty for now on reduced hedging positioning. A break below the 16.80 level last week may potentially leave any retest of its 2023 bottom on watch into year-end, which will be a crucial support line.

Asia Open

Asian stocks look set for a mixed open, with Nikkei +0.74%, ASX +0.57% and KOSPI -0.31% at the time of writing. A continued plunge in oil prices to its three-month low may be well-received by risk sentiments in the region, alongside the more subdued bond yields, but worst-than-expected China’s inflation data may be a limiting catalyst for gains.

China’s consumer prices fell -0.2% year-on-year (YoY) in October versus the -0.1% expected, which marked a reversion into deflation as recovery hopes in August came short-lived. Producer prices also turned in a deeper contraction in October at -2.6% from previous -2.5%, which will mark its 13th straight month of contraction. The inflation data is likely to reinforce the weaker-than-expected Purchasing Managers' Index (PMI) figures last week, which continue to point to low-for-longer growth conditions and may raise doubts on the success of easing policies efforts thus far. Today’s data seems to reinforce the view that more needs to be done.

One to watch may be the ASX 200. Having traded in a falling channel pattern since July this year, recent upside seems to mark an attempt from buyers to break above the upper channel resistance. A bullish crossover on moving average convergence/divergence (MACD) marked a near-term shift in momentum to the upside for now. Its Ichimoku cloud on the daily chart may provide the next zone of resistance to overcome at the 7,100 level, with any successful move above the level potentially paving the way to retest the 7,380 level next.

On the watchlist: Brent crude prices back below 200-day MA

Brent crude prices hit a three-month low yesterday, as market participants continue to price out the risks of a wider conflict in the Middle East, while shifting their attention to the loosening demand-supply dynamics. Mixed economic conditions out of China this week, along with a significant build-up in crude inventories (11.9 million-barrel versus -0.3 million expected) reflected in the American Petroleum Institute (API) data, did not offer much conviction for its demand outlook yet.

Prices seem to be trading on a head-and-shoulder formation since July this year, but with recent downside registering a breakdown of its neckline at the US$85.00 level, alongside its key 200-day moving average (MA). On the weekly chart, a bearish crossover was displayed on MACD while relative strength index (RSI) heads below the 50 level as a sign of downward momentum, which may place the US$76.00 level on watch ahead.

Wednesday: DJIA -0.12%; S&P 500 +0.10%; Nasdaq +0.08%, DAX +0.51%, FTSE -0.11%