Asia Day Ahead: Hang Seng Index attempts to stabilise

Asia Open

Following little moves around Wall Street overnight, the Asian session is largely kept in a similar holding pattern, with the lead-up to the key US non-farm payroll driving the usual wait-and-see. Recent series of events has left eyes on the Federal Reserve (Fed) for any earlier rate cut, with the Bank of Canada and European Central Bank (ECB) making their first move this week, while recent US job indicators have surprised on the downside.

US Treasury yields managed to stabilise after their recent dip, but the US dollar continues to carry a downward bias following a trendline break early this week. This may point to a near-term consolidation before a continuation of its decline, which may be positive for Asian equities ahead. For now, markets remain adamant for a September rate cut, which offers some runway to gauge further inflation progress for the Fed.

The Nikkei remains in its consolidation mode, treading back and forth around the 39,000 level, presenting a divergence with the Nasdaq 100 (which just turned in a fresh record high). Reservations may kick in ahead of upcoming Bank of Japan (BoJ)’s policy decision, as the central bank continues to deviate away from the policy-easing playbook among global central banks. The central bank has floated the possibility of cutting bond purchases as soon as the next meeting, although they may still lean slightly dovish to avoid any overreaction in government bond yields.

Look-ahead: US non-farm payrolls

Last month, the US non-farm job additions have edged below the 200,000 mark for the first time in six months. Market participants will be watching if the labour weakness will make a trend, with expectations for upcoming read to edge just slightly higher to 185,000. Unemployment rate is expected to remain unchanged at 3.9%, while average hourly earnings may edge to 0.3% from the 0.2% prior.

It may have to take a significant downside surprise in labour conditions to convince the Fed for an earlier rate cut, given that inflation progress has broadly stalled around the 3% level. Economic conditions have been more well-balanced, but recent strength in services activities may offer room for the Fed to be more patient in its policy easing process.

What to watch: Hang Seng Index (HSI) attempts to stabilise

The HSI has retraced more than 8% from its nine-month high after touching an inverse head-and-shoulder projection on the daily chart. Recent moves marked an attempt to stabilise but with the daily relative strength index (RSI) edging back below the key 50 level, the bulls are in for some hurdle. On the weekly chart, the key 20,000 level will be a crucial level to watch, having marked the Ichimoku Cloud resistance where the index has failed to break above for the third occasion.

China’s trade data will be released later today and given the set of mixed economic readings over the past month, the updated trade activities will offer fresh views on the broader recovery. The numbers may reflect ongoing strength in global demand, with exports to increase 6% year-on-year from the 1.55 prior, but imports may moderate further to 4.2% from previous 8.4%.