Asia Day Ahead: China’s economic data deliver positive surprises

Asia Open

The Asian session started the new trading week on a more positive tone, with Nikkei +2.12%, ASX +0.01% and KOSPI +0.38% at the time of writing. It seems that risk sentiments are regaining its footing from the downbeat session in Wall Street last Friday, but whether such optimism can be followed through will still revolve heavily around a series of central banks’ meeting outcomes this week (Federal Reserve (Fed), Reserve Bank of Australia (RBA), Bank of England (BoE), Bank of Japan (BoJ)).

Expectations are for most central banks to keep rates on hold, except for the BoJ where a rate move is currently priced to be at 40%, slightly down from the 50% last week. Nevertheless, markets are kept on their toes for any surprises around central banks’ policy guidance or pushback against the scale of rate cuts, especially with commodity prices on the rise and the last leg of the inflation fight proving to be sticky. The Bloomberg Commodity Index just touched its year-to-date high last week, rising by 3.5% over the past month.

For now, the US dollar continues to hover around its one-week high, which kept gold prices (-0.2%) on the downside this morning. Chinese equities are finding some room to recover, following positive surprises on the economic data front, with the CHN5 just hanging above its 200-day moving average (MA).

Economic data to digest: Positive surprises in China’s economic data

The economic calendar today saw a series of positive surprises from China’s data, which revealed some encouraging stability in economic conditions. Retail sales grew 5.5% year-on-year versus the 5.2% expected, although questions remain on whether the bulk of festive spending during the period can sustain. Industrial production was up 7% versus the 5% consensus, while fixed asset investment outperformed at 4.2% (consensus 3.2%).

Nevertheless, further follow-through in the data will be much needed over the coming months as an indication of policy success in shoring up growth, given the on-and-off recovery seen over the past years and some low base effects at play. For now, it seems that China may remain set on its gradual path of policy support to meet its 5% growth target set for the year.

What to watch: Nikkei 225 gains ahead of BoJ meeting

Buyers managed to regain control of the Nikkei 225 index to start the week, with the index finding its way to a one-week high after a brief consolidation. This comes as its daily relative strength index (RSI) called for some defending at the key 50 level, with buyers attempting to keep the near-term upward trend intact. Immediate support to watch may remain at the 38,200 level, where a 23.6% Fibonacci retracement level stands, while on the other hand, its all-time high at the 40,631 level will be the next resistance for buyers to overcome.