The Asian trading session is expected to open slightly positive, with the Nikkei and ASX showing gains of 0.65% and 0.42% respectively. This follows a mixed performance on Wall Street, where risk-on sentiments remain intact despite some profit-taking.
The VIX, a measure of market volatility, is trending lower, indicating a more stable market environment. The recent US inflation data for October met expectations, contributing to overall market stability and allowing Wall Street to hover around recent highs. The Federal Reserve's monetary policy is being closely watched as the lack of significant inflationary pressures may lead to another 25 basis point rate cut in December. However, upcoming job reports and inflation readings will be critical in shaping the Fed's decisions.
For now, the expectation of continued policy easing is positively influencing market sentiment, particularly in the Asian markets.
The USD/JPY currency pair is experiencing a notable bounce, supported by its 200-day moving average and an upward trendline. This reflects strong buying interest, with the daily relative strength index (RSI) remaining above its mid-line, indicating bullish momentum. Traders are closely watching the 157.66 level for a potential retest, with the key psychological level of 160.00 also on the radar.
Chinese equities are facing challenges due to renewed concerns over US trade policies, particularly with the potential for a "Trump 2.0" scenario. The Nasdaq Golden Dragon China Index has seen a decline of over 1%, erasing gains made since late September. The daily RSI for this index has dipped below its mid-line, suggesting a near-term bearish bias.
Market participants are waiting for clarity on the future of import tariffs, drawing parallels to the 2018 trade war. While the current downturn may be more limited due to lower valuations and anticipated fiscal stimulus from China, the uncertainty surrounding US-China relations continues to weigh heavily on investor sentiment.
The Hang Seng Index (HSI) has recently broken below the critical 20,300 support level, indicating strong bearish pressures in the near term. The index's daily RSI has also fallen below its mid-line, reinforcing the negative outlook. As uncertainties surrounding US trade policies persist, the HSI is expected to continue its downward drift, with the next line of support potentially at the 18,527 level.
This week, attention will be focused on a series of economic data releases from China, including retail sales, industrial production, and fixed asset investment. These figures will be pivotal in assessing the effectiveness of China's recent stimulus measures. Any disappointing results could increase pressures on Chinese authorities, who are aiming to meet their growth target of around 5% by the end of the year.
The upcoming economic data from China is critical for understanding the impact of government stimulus on the economy. Investors are aware that any signs of weakness could lead to increased scrutiny of China's economic policies and their ability to sustain growth amid external pressures.
The market's reaction to these data points will likely influence not only Chinese equities but also broader regional sentiment. The interplay between US monetary policy, trade relations, and economic performance in Asia will remain a focal point for investors as the global economic landscape continues to evolve. The current environment suggests cautious optimism, but the potential for volatility remains as market participants navigate these complex dynamics.