Asia Day Ahead: Eyes on key China’s data ahead

Wall Street Wrap

Major US indices ended its three-day winning streak, unable to build on recent inflation optimism as headlines-driven weakness in tech dominated. News around Apple (-4.0%) losing its top spot in China raises more doubts around its iPhone sales prospects, especially as market expectations already anticipate a modest 2% growth in iPhone sales for its upcoming reporting quarter.

Part of the market weakness may be technically driven as well, with the Nasdaq 100 index encountering resistance at a near-term downward trendline established since December 2024. However, underlying dynamics still reflect a risk-on appetite, with sector performance pointing to a rotation rather than a broad-based reversal.

Eight out of 11 S&P 500 sectors closed in the green, while small cap stocks (Russell 2000) posted slight gains. Whether there will be further catch-up in value sectors’ performance remains a key theme to watch, especially as earnings growth projections improve for these segments.

The US dollar was a tad lower (-0.1%), while the US 10-year yields extended its post-consumer price index (CPI) decline by 4 basis point (bp) overnight. Weaker-than-expected retail sales and employment claims data may reinforce dovish bets, although well-anchored market rate expectations following the recent US CPI data suggest little need for further recalibration at this stage.

Asia Open

Asian markets are expected to follow Wall Street’s lead, with the Nikkei down 0.69%, the ASX slipping 0.03%, and the KOSPI declining 0.29% at the time of writing. However, losses appear relatively contained, with the region’s lower exposure to growth stocks offering some insulation from the tech sell-off in the US, while a weaker US dollar and lower bond yields may offer additional cushion.

The Japan’s Nikkei seems to be under greater pressure from recent hawkish Bank of Japan (BoJ) bets, with expectations of a potential rate hike likely to foster a tone of caution ahead of next week’s meeting. You can read more about our preview for the BoJ meeting here: https://www.ig.com/sg/news-and-trade-ideas/bank-of-japan--boj--preview--live-meeting-amid-rate-hike-specula-250116

China’s economic data on close watch ahead

Attention will turn to the slew of China’s economic data ahead, with its 4Q gross domestic product (GDP) expected to show a 5% year-on-year (YoY) growth, up from 4.6% in Q3. The growth is likely to reflect recent export strength and the late-September stimulus measures, bringing full-year GDP growth to 4.9% and in line with authorities’ target of “around 5%”. Retail sales are projected to rebound to 3.5% from the previous 3.0%, while industrial production and fixed asset investment are expected to hold steady at 5.4% and 3.3%, respectively.

While better-than-expected data could offer some short-term support for sentiments, risk appetite is likely to remain capped. Market participants are more heavily focused on China’s growth prospects, particularly in light of any upcoming Trump administration’s trade pressures. The current export-driven growth faces risks from potential tariffs, while the momentum from front-loading goods ahead of Trump’s presidency may taper in the coming months, once again necessitating more consumption-driven policies to fill the gap.

Hang Seng Index: 20,000 level as resistance confluence to overcome

The Hang Seng Index (HSI) has been trading within a descending wedge formation, and while it has rebounded close to 4% over the past week, attention is now focused on a key resistance area around the psychological 20,000 level. This zone aligns with the upper wedge boundary and the daily Ichimoku Cloud resistance.

The index is likely to remain sensitive to developments around Trump’s trade policies. While tough rhetoric on trade is expected, any consensus will take some time to materialise. Further downside could put the 18,200 level in focus, where a broader upward trendline support is in place.