Asia Day Ahead: China’s stimulus hopes, RBA meeting on watch

Chinese equities brought back on the radar

The Asian markets kickstarted the new week with a late-afternoon surge in Chinese equities yesterday, with one to watch for the bullish momentum to continue into today’s session, given the limited window for market participants to react to the Politburo meeting yesterday. Overnight, the Nasdaq Golden Dragon China Index closed up more than 8.5%, notching its highest level since October this year.

With another fresh round of verbal reassurances from China authorities at the meeting, policymakers have now kept market hopes high for aggressive policy stimulus to come next year, laying out its pledge for “more proactive” fiscal measures and “moderately” looser monetary policy to boost domestic consumption. This marked its first shift in monetary stance since 2011, which may hint that upcoming policy efforts may move up a notch, potentially with further rate cuts and targeted fiscal injections.

China’s Central Economic Work Conference (CEWC) on watch ahead to keep up dovish rhetoric

The mixed run in economic data lately, from the Purchasing Managers' Index (PMI) and consumer inflation, may have prompted Chinese authorities to react, in a bid to restore some economic confidence. And with the upcoming China's CEWC, we may likely see policymakers keep up with its dovish rhetoric and offer a confidence booster, potentially emphasising on stabilising growth and preparing for external uncertainties.

We may expect decisive action to come only in 1Q next year, where authorities will have more colours over upcoming US trade restrictions and to come up with an appropriate response to mitigate any economic impact. As before, there are still room for disappointment if policy specifics failed to meet market expectations. But for now, this could be a repeat of April 2024 and September 2024, where stimulus hopes may aid to drive a renewed bump in Chinese equities.

Economic calendar to leave Reserve Bank of Australia (RBA) meeting in focus

The day ahead will also leave eyes on the RBA meeting (11.30am SGT), with expectations for the central bank to keep its official cash rate on hold at 4.35% for the eighth consecutive meeting. As that has been fully priced by markets, the focal point will be whether the weak Q3 gross domestic product (GDP) figure will prompt policymakers to lay the groundwork for a potential rate cut early next year.

The balance between inflation and growth remains tricky thus far, as underlying inflation proved to be persistent while growth risks have been mounting. How policymakers may shift its priority will be on watch to move the dial around the rate-cut timeline in 2025.

Technical analysis: China A50 forms near-term double bottom

The China A50 seems to form a near-term double bottom, with the index retesting its potential neckline at the 14,345 level. Any break above the 14,345 level may offer the validation for buyers, with price projection of the pattern potentially leaving its October 2024 high at the 15,834 level on watch next.

For now, its daily relative strength index (RSI) has headed back above its mid-line, following a prolonged period of indecision (consolidation). Its daily moving average convergence/divergence (MACD) is also eyeing for a move back above the zero mark, with one to watch for any follow-through in positive momentum. Failure to cross the 14,345 level could see the index retrace towards the 13,700 level, where a near-term horizontal support may stand.