The Asian financial markets are poised for a stable start today, with early performances showing mixed results: the Nikkei is up 0.83%, the ASX down 0.05%, and the KOSPI rising 1.09%. This follows a positive handover from Wall Street, where all three major U.S. indices closed in the green. However, mid-day saw aggressive paring of gains, reflecting ongoing caution around risk-taking.
The current quieter period in the markets may be influencing this cautious stance, as the bulk of the U.S. earnings season has concluded and the impressive performance over the past year may prompt some profit-taking. Despite this, market movements are calmer, with volatility easing from its previous extremes, though it remains elevated.
On the economic front, the Atlanta Federal Reserve’s upward revision of the U.S. GDP forecast to 2.9% has added to the mitigation of recession concerns. Regional risk sentiment has stabilized somewhat, although a rebound in U.S. Treasury yields and a stronger U.S. dollar may pose some resistance, potentially linked to easing recession fears.
Looking ahead, China’s trade data will be in focus. Expectations are for July exports to grow by 9.7% year-on-year, up from 8.6% previously, marking the highest growth since March 2023 and indicating stability in global demand. Imports are projected to increase by 3.5% year-on-year, reversing the 2.3% contraction seen in June, suggesting improvement in domestic demand. If these expectations are met or exceeded, it could offer a positive boost for global markets, alleviating recession fears and providing support for Chinese equities.
In Japan, the Nikkei has edged higher as the Japanese yen’s strength eased, bringing some relief to exporters. The index faces key resistance around the 35,000 level, where an upward trendline poses a challenge for buyers. An attempt to reclaim this level failed yesterday, with buyers likely to make another attempt today as technical conditions moderate from oversold levels. A successful breach of the 35,000 level could reinforce the recent bounce and potentially lead the index towards the 37,000 mark. Conversely, failure to surpass the trendline resistance may result in a decline to the 32,200 level, with the Monday low of 30,430 potentially in sight.
The Hang Seng Index (HSI) continues its downward drift within a channel, with the daily relative strength index (RSI) failing to decisively cross above its mid-line since May. The break of an upward trendline support in late July remains significant. Although China’s accommodative policies and recent positive surprises, such as the Caixin Purchasing Managers’ Index (PMI) readings, offer some support, the market’s upside potential may be limited until there is more sustained evidence of economic recovery.
Near-term support for the HSI may be found at the 16,300 level. A breach of this support could lead to a retest of its year-to-date low. Any rebound within the current channel could face resistance at the upper channel trendline, potentially around the 17,538 level.
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