Asia Day Ahead: ASX 200 recovers, STI bounced off trendline support

Asia Open

The asian session looks set for a steady start in today’s session, with ASX +0.06%, KOSPI +0.54% and NZX +0.28% at the time of writing, as the dust seems to settle after a turbulent week. Japan’s market is closed for holiday today, which may bring some calm for markets, given the historic volatility presented in Japanese equities last week – its largest single-day decline on Monday before rounding up the week higher.

The recent run in stronger-than-expected US economic data has aided to push back against recession concerns, with rate expectations now suggesting that the US Federal Reserve (Fed) may retain more flexibility in its policy easing process as compared to one that is being forced by higher economic risks. As long as the trend continues, that may be looked upon with further relief in the risk environment, with the “good news is good news” mantra likely to remain in play after the Fed has very much laid the groundwork for upcoming easing.

Thus far, a 50 basis point (bp) cut in September is priced at a coin flip, while cumulative 100 bp worth of easing is priced by the end of this year. The key risk event this week will be the US consumer price index (CPI) data this week, with market participants hoping to see a continued softening in US inflation but not too soft so as to cast a gloom over the country’s economic health.

Asian indices have broadly recovered above their last Monday’s sell-off, with the Hang Seng Index (HSI) gapping higher on Friday after higher-than-expected inflation data spurred some hopes to China’s economic recovery story. But delving further will show the core CPI at its lowest level since February this year, which raised doubts of whether domestic demand is actually at play here. Further clues will be sought from the China’s monthly ‘data dump’ this week.

ASX recovers above previous trendline breakdown

The ASX managed to regain its footing over the past week, in line with the recovery in global risk sentiments, with the index heading back above a trendline resistance at the 7,764 level. Its daily relative strength index (RSI) is now back at more neutral levels, with any further move above the mid-line potentially reflecting buyers in greater control.

The 7,936 level may be on watch as the next line of resistance to overcome, while on the downside, the failure for the upward trendline to hold may potentially open the door for the index to fall back towards its August low at the 7,526 level.

Straits Times Index (STI) finding support from upward trendline

Following a close to 9% retracement from its July peak, the STI has found near-term support at an upward trendline at around the 3,200 level as technical conditions seek to moderate from previous oversold levels. The 3,300 level may be eyed for a retest by buyers next, which marked the high of last Monday’s global equities sell-off. Any successful move in reclaiming the 3,300 level may bode well for further recovery in the index, which may pave the way for the index to head for the 3,390 level next.

Over the past three weeks, there has been net institutional outflows from the index based on the Singapore Exchange (SGX)'s data, but at least, the extent of outflows has been easing. On the downside, the upward trendline at the 3,200 level will be immediate support for buyers to hold.