Asia Day Ahead: Hang Seng Index marches into technical bull market

Asia Open

The Asian session was set for a positive start, with ASX +0.54% and KOSPI +0.53% at the time of writing, while Japan markets are closed for holiday. A combination of lower Treasury yields and a plunge in the US dollar overnight may be well-received by risk sentiments across the region, as market participants continue to bask in the slightly dovish lean from the recent US Federal Reserve (Fed) meeting.

US policymakers have revealed a high threshold for additional rate hikes despite the run in persistent inflation. Apple’s after-market results also offered some comfort with a smaller-than-expected decline in revenue, while Apple CEO Tim Cook guided for a potential turnaround to “low single digits” growth at the June quarter. Hopes that the worst is potentially over have driven Apple’s share price up more than 6% after-market.

Chinese equities had a stellar run lately, marching into a technical bull market. Some catch-up rotation may be at play, given that it offers an attractive value proposition amid some green shoots in Chinese economy. Of course, eyes will remain on deflationary risks and any policy success in the property sector ahead.

Look ahead: US non-farm payroll

In the recent Fed meeting, policymakers noted a “lack of further progress” towards its inflation objective. Having signalled that wage growth was stronger than the Fed thought would be consistent with low and stable inflation over time, eyes will be on any moderation in wage gains to offer some reassurances that wage pressures are under control and is not part of a reacceleration trend.

The Fed has also previously stated that strength in the labour market would not necessarily preclude rate cuts. That will market participants to continue to be on the lookout for a lukewarm read, which is not too overblown to change the Fed’s views but at the same time, supportive of a soft-landing scenario as well.

Current consensus is for US to add 243,000 jobs in April, down from the previous 303,000 in March. With US job numbers pulling ahead of consensus for the past five months, markets will be watching if the trend may continue. Unemployment rate is expected to stay unchanged at 3.8% from March, while average wage growth is expected to stay unchanged as well at 0.3% month-on-month.

What to watch: Hang Seng Index (HSI)

Following a break of a downward trendline resistance in late-April, the stage seems to be set for a near-term reversal in place, with the index crossing into bull market territory. Having reclaimed the 18,000 level, market participants may set its sight to retest the 18,800 level next, while an inverse head-and-shoulder breakout suggests eventual price target at the 19,500 level.

For now, near-term overbought technical conditions may call for some cooling in the recent rally, with its relative strength index (RSI) at its highest level since January 2023. Nevertheless, the broader upward trend may remain intact, leaving any formation of a higher low on watch. On any downside, immediate support may be at the 18,000 level. This is followed by the 17,200 level, where the inverse head-and-shoulder neckline will call for some defending.