Asia Day Ahead: Nikkei eyes 35,000 level, HSI remains on a downward drift

Asia Open

The Asian session looks set for a stable start in today’s session, with Nikkei +0.83%, ASX -0.05% and KOSPI +1.09% at the time of writing. Overnight Wall Street performance did offer a positive handover with all three major US indices closing in the green, but there was some aggressive paring of gains mid-day, which may still reflect some reservations around risk-taking.

The quieter period of the year may play a part, given that the bulk of the US earnings season is behind us and the stellar performance over the past one year may prompt some profit-taking. Nevertheless, we are seeing calmer moves in the markets, with volatility still elevated but at least easing off from its extreme.

On the data front, an upward revision in the Atlanta Federal Reserve (Fed)’s gross domestic product (GDP) now forecasts to 2.9% added to the pushback against recession concerns. Risk sentiments across the region have somewhat settled, but a rebound in US Treasury yields and a firmer US dollar may offer some resistance, although those moves may come off the back of easing recession worries.

Look-ahead: China’s trade data in focus

The economic calendar ahead will bring attention to China’s trade data, with expectations that the trade numbers may be promising. Exports for July is expected to grow 9.7% year-on-year, up from previous 8.6%. If it materialises, this will be the highest growth since March 2023, and reflects some stability in global demand.

Imports for July is expected to grow 3.5% year-on-year, which will be a reversal from the 2.3% contraction in June, likewise offering some relief around domestic demand. The overall data release, if in line or above the estimates, will offer some positive light for global markets, one in terms of pushing back against recession fears with strong trade activities and two, offering some room for Chinese equities to stabilise with the resilient set of data.

Nikkei finding room for recovery, but the 35,000 level stands in the way

The Japan’s Nikkei managed to edge higher in today’s session, as the strengthening in the Japanese yen saw some easing, which brought some calm for Japanese exporters. Nevertheless, key resistance for the index may be presented at the 35,000 level, where an upward trendline will now serve as an obstacle for buyers to overcome. An attempt to reclaim the 35,000 level yesterday failed to materialise, with buyers seeking for another attempt in today’s session as technical conditions moderate from oversold levels.

Overcoming the 35,000 level may provide more conviction for the recent bounce, which may pave the way for the index to retest the 37,000 level next. On the other hand, failure to cross back above the trendline resistance could bring a drift lower to the 32,200 level before its Monday’s low at the 30,430 level comes on the radar.

Hang Seng Index (HSI) continues its downward drift

The HSI continues its drift lower within a downward channel, with the failure for its daily relative strength index (RSI) to cross above its mid-line decisively since May this year still putting the index on a downward bias. The break of an upward trendline support in late-July this year may be significant as well.

As China’s policies continue to remain accommodative in stabilising growth and economic conditions have been met with pockets of positive surprises, such as the Caixin Purchasing Managers' Index (PMI) readings we saw just yesterday, downside may be more cushioned. But on the other hand, upside may be hard to come by, as markets need to be convinced that its economy are on a more sustained path of recovery as compared to the on-off hits and misses.

Near-term support may be found at the 16,300 level, where a break of this level could pave the way for a retest of its year-to-date low. With the near-term channel in place, any bounce could see the upper channel trendline serving as resistance, potentially at the 17,538 level ahead.