Asia Day Ahead: Hang Seng Index fumbled at trendline resistance

Asia Open

Markets across the region were locked in a risk-off mode to start the new week, with Nikkei -1.51%, ASX -0.50% and KOSPI -1.10% at the time of writing. At a time when market participants were still trying to wrap their heads around how far Federal Reserve (Fed)’s rate cuts will go this year, major US banks earnings revealed pockets of weakness in terms of net interest income and higher expenses, while geopolitical developments over the weekend triggered fresh concerns on any back-and-forth retaliation.

These factors offered markets some reasons to de-risk, as some may argue that the stellar rally in global equities since the start of the year may be due for a correction, while seasonality ahead turns less favourable. The US dollar extended its recent gains by another 0.7% last Friday on potential safe-haven flows, with the formation of a new higher high reinforcing its upward bias over the past months. That may keep a lid on gold prices’ upside, which saw significant unwinding on a surge in volume last Friday. Further follow-through may be likely this week, which may leave the US$2,300 level on watch as near-term support to hold.

Economic data to digest: Japan’s machinery orders, China’s MLF rate

This morning’s data revealed a sharp bounce in Japan’s machinery orders (7.7% month-on-month versus -1.7% prior), which offered a more positive view for the country’s domestic demand. Currently, markets are pricing for the Bank of Japan (BoJ) to raise rates again in July this year and further run in stronger-than-expected economic data may likely offer support to such views.

There was perhaps an unsurprising move from the People's Bank of China (PBoC) as well, with the central bank keeping its one-year medium-term lending facility rate (MLF) interest rate unchanged at 2.5%. Given the mixed set of data lately (bounce in Purchasing Managers' Index (PMI) but weaker pricing pressures), more time may be needed to assess the sustenance of the recovery, while authorities continue to keep an eye on stabilising the yuan.

What to watch: HSI fumbled at trendline resistance

The recovery in the Hang Seng Index (HSI) since the start of the year seems to have fumbled at a downward trendline resistance at the 17,000 level, with its daily relative strength index (RSI) dipping below the key 50 level for the first time since February this year. With the Ichimoku Cloud on the daily chart being put to the test, the lower edge of the cloud support at the 16,000 level will be on watch as key support to hold. As long as the index failed to overcome the downward trendline resistance, the broader trend may remain bias to the downside.