Asia Day Ahead: Hot US inflation print drives near-term shunning, Indonesia election in focus

Market Recap

A hotter-than-expected print in US January consumer price index (CPI) data kept Wall Street on the backfoot overnight, as market participants recalibrated their rate expectations to price for a later timeline for Federal Reserve (Fed)’s rate cut (June versus March). Shelter costs (+0.6% month-on-month (MoM)) accounted for the bulk of the increase alongside food prices (+0.4%), while lower energy prices (-0.9%) offered some slight mitigating impact.

While a single data point does not make a trend, the relentless risk rally over the past months has left little room for error when it comes to the inflation fight. Some level of pricing stickiness may suggest that it may take more time for pricing pressures to move towards the Fed’s target rate and justify policymakers’ recent echo to keep rates high for longer.

US Treasury yields jumped, with the 2-year yields up 18 basis point (bp) while the 10-year yields are back to retest its 200-day moving average (MA) at the 4.32% level. The US dollar found little resistance to its near three-month high, while US equities found a reason for some de-risking. With that, gold prices have broken below an upward trendline, while daily moving average convergence/divergence (MACD) reversed further into negative territory. The US$1,975 level will be on watch as immediate support to hold, failing which may open the door to retest the US$1,935 level next.

Asia Open

Asian stocks look set for a downbeat open, with Nikkei -0.47%, ASX -1.13% and KOSPI -1.64% at the time of writing. Higher Treasury yields, a surge in the US dollar and the negative handover from Wall Street offer reasons for some de-risking into today’s session.

It will be a quiet front for Asia’s economic calendar today, but attention will revolve around the Indonesia Presidential elections. Thus far, survey numbers have put Prabowo Subianto in the lead, who has the backing of current President Joko Widodo and the incumbent leader’s eldest son as his running mate. With that, his victory will likely lead to broad economic policy continuity, which will be well-received by the population. The stance on foreign policies may remain as well, with a continued pursue of warmer relations with neighbouring countries, but a clear business orientation towards China.

However, the potential risk is that if the candidate failed to secure both election criteria, a run-off election has to be called and that will extend the political uncertainty of the country’s leadership to June. Given that there have already been much discontent within the country’s Cabinet, the delay of a clear leadership could leave policies on a standstill and the lack of clarity may drive some near-term shunning from foreign investors.

Indonesia is a key global player in commodities (nickel, palm oil, thermal coal) and Prabowo Subianto’s election may drive more of the same in terms of policies. He has been supportive to keep the current mineral export ban in place, while continuing efforts to develop downstream industries. A brief look at Nickel’s prices reveals some base-building in place after a prolonged downtrend since the start of 2023. Greater conviction for a trend reversal may have to come from a move back above the US$18,488/t, where a resistance confluence stands (Ichimoku cloud resistance, upper consolidation range, 100-day MA). Near-term support may be at the lower end of the base at the US$15,858/t level.

On the watchlist: USD/SGD completes inverse head-and-shoulder (HNS) formation

A 0.7% jump in the US dollar overnight has driven the USD/SGD to complete its inverse HNS formation on the daily chart, as the pair broke above the formation neckline at the 1.348 level following a brief consolidation. This seems to keep an upward bias in place, with the projection of the neckline breakout leaving the 1.375 level on watch as a potential price target over the medium term.

To support buyers in control, the daily relative strength index (RSI) continues to trade above the key 50 level since the start of the year, while the Ichimoku cloud resistance on the daily chart was also overcame recently for the first time since August 2023. Ahead, the 1.348 level will serve as immediate support to hold, where the inverse HNS neckline stands alongside the 100-day MA. On the upside, the 1.360 level will be on watch to provide some potential resistance, followed by the 1.375 level.