Asia Day Ahead: Tesla’s earnings, China’s stimulus

Market Recap

The S&P 500 and Nasdaq managed to touch another intraday record high overnight, but gains were pared aggressively towards the latter half of the trading session on some profit-taking. Growth sectors continue to outshine the rest, with semiconductors leading the way while Netflix added more than 10% on a blockbuster Q4 earnings. The energy sector (+1.4%) shined as well, with an attempt to bounce lately after underperforming over the past two weeks.

On the economic calendar, US flash purchasing managers index (PMI) data for January seems to reflect more of the same – resilient economic conditions on higher-than-expected manufacturing and services numbers, while inflation continues to abate. The data did not trigger much of market reaction, with attention concentrating on Tesla’s results after-market. A top and bottom-line miss for Q4, along with a guidance for slowing production ahead, were not well-received by market participants, leading to a 6% loss in its share price after-market.

Ahead, the October 2023 low at the US$195.00 level will be on watch for some defending ahead. Failure to hold the line could pave the way towards the lower trendline of a descending channel at the US$165.00 level. On the economic data front, US Q4 gross domestic product (GDP) will be in focus. Expectations are for a lukewarm 2% quarter-on-quarter read, which should leave soft-landing hopes brewing while keeping inflation concerns at bay.

Asia Open

Asian stocks look set for a mixed open, with Nikkei -0.37%, ASX +0.14% and KOSPI -0.28% at the time of writing, mirroring the subdued state of US equity futures this morning on Tesla’s results. Headlines from yesterday were revolving around China’s stimulus, with an announcement to lower its reserve ratio requirements (RRR) by 50 bp from 5 February 2024.

While expectations for more support from authorities have been largely in place since the start of the year, the timing and scale of cut to the RRR may caught many by surprise. Guidance from policymakers is that the move may provide 1 trillion yuan ($139.45 billion) in liquidity, but given that earlier two cuts last year have failed to provide much turnaround in economic conditions, the eventual effectiveness of the latest cut is still brought into question. Nevertheless, the higher-than-expected cut highlights a continuation of authorities’ efforts to stabilise growth and tints of willingness for more aggressive support, which may drive some temporary unwinding in the extreme bearish sentiments for Chinese equities.

The Hang Seng Index (HSI) is attempting to pare earlier losses on the latest announcement, but as we have seen over the past year, intermittent bounces on supportive policies have failed to sustain, which may potentially mean more of the same this time round. For now, the trend remains downward bias on the series of lower highs and lower lows, with greater conviction for a reversal potentially having to come from a move back above its Ichimoku cloud resistance and various moving averages (MA).

On the watchlist: AUD/USD eyeing to retest support confluence

The AUD/USD is attempting to stabilise lately after retracing close to 5% since the start of the year, but much awaits on whether a reversal is in place. Its relative strength index (RSI) on the daily chart has reverted back below the key 50 level for the first time since November 2023, as an indication of sellers in control. Near-term, a support confluence may stand at the 0.653 level, where its 100-day MA may coincide with the lower edge of its daily Ichimoku cloud support. Failure for the level to hold could pave the way to retest the 0.636 level next.

Wednesday: DJIA -0.26%; S&P 500 +0.08%; Nasdaq +0.36%, DAX +1.58%, FTSE +0.56%