Asia Open
The Asian session appears to be off to a steady start today, with Nikkei +0.56% and ASX +0.59% at the time of writing. Korean markets are closed today for holidays. Overnight, risk sentiments continue to ride the all-clear signal after the US Consumer Price Index (CPI) for July showed further disinflation in US consumer prices, in line with weaker producer price data a day earlier. Inflation data will reinforce the view that the Federal Reserve (Fed) will cut interest rates in September, but the modest 0.1% advance in both headline and core data appears to be driving less dovish views, with a bias toward a 25 basis point (bp) cut from the 50 bp move initially priced in.
With inflation risks receding, the focus of markets will continue to shift to growth conditions, fuelling the debate about a soft landing going forward. Some of the attention will turn to US retail data today, with July expected to rise 0.3% month-on-month after growth stagnated in June. Any disappointment on this front could reignite recession rumours amid a weaker labour market and rising household debt.
Before that, China’s monthly “data dump” will take center stage. Retail sales are expected to rebound to 2.6% from 2.0%, while industrial production and fixed asset investment are expected to remain flat. Overall, this may not yet be enough to convince markets of a more sustained recovery in China, but any positive surprise would be a positive move, reflecting some stabilization and bringing some respite to Chinese equities after yesterday’s poor performance.
On another front, Japan’s gross domestic product (GDP) was promising in Q2, with a strong 3.1% increase versus the 2.1% expected. The income-expenditure cycle is taking shape, reflected in a rise in private consumption, which should pave the way for further normalization of the Bank of Japan’s (BoJ) monetary policy. With most of the yen carry unwind potentially behind us, we can expect Japanese equities to find room for further recovery with this data.
Nikkei recovers to 50% Fibonacci retracement
The Nikkei has so far rallied more than 20% since last Monday’s low and is now at its 50% Fibonacci retracement level at 36,452. Looking ahead, the 200-day moving average (MA) at 37,300 could be retested, with the trendline previously supporting the index in October 2023 but now serving as resistance to overcome after a breakdown earlier in the month. Reclaiming the 200-day MA could pave the way for the index to next retest the 37,900 level, where the 61.8% Fibonacci level lies.
