Overview
With the S&P 500 ending at fresh record high overnight, the Asian session largely saw a sea of green today at the time of writing as well, with NIkkei +1.65%, ASX +0.88% and KOSPI +0.17%. The exception revolves around Chinese equities, as market participants failed to find much conviction for further risk-taking, given the lack of clarity over the fiscal policy front. Corporate earnings should continue to lead the way for risk sentiments this week, while market participants may also side-eye economic data releases, such as the US retail sales, for further validation of soft-landing hopes.
Here’s our view on where the various Asian indices could be headed:
Nikkei 225: Weaker yen narrative offering support
Japanese authorities have recently thrown their support behind a more gradual pace of policy normalisation, which help to tame aggressive rate hike expectations and saw the Japanese yen ease against the US dollar to its weakest level in two months. A softer yen has been generally supportive of the Nikkei by offering a boost to the country exporters’ overseas earnings when converted into domestic terms.
We believe there may be room in the near term for the yen to weaken further, based on expectations for the Bank of Japan (BoJ) to keep policy settings on hold in the 31 October meeting, while policymakers may likely refrain from committing to any rate move before the US election. Still-weak household spending data remains a source of reservation for policymakers as well, which may translate to an ongoing lack of clarity around the timeline for the next hike and that may underpin the Japanese yen in the near term.
On the technical front, the series of higher lows have kept the Nikkei on a broader upward trend, with buyers potentially seeking to head for the 41,150 – 41,670 range next. Its daily relative strength index (RSI) has managed to defend its mid-line in late-September, while its daily moving average convergence/divergence (MACD) has also crossed into positive territory. Buy-on-dips remain the preferred strategy, with any retracement towards the 38,370 (its 200-day moving average (MA)) offering an opportunity to load up on longs.
