Asian Stocks Surge, Nikkei Hits 33-Year High Amid Economic Challenges

On Monday, most Asian stocks experienced a significant surge due to a decline in U.S. inflation, which raised hopes for a more accommodative stance from the Federal Reserve. Additionally, positive data indicating improved sentiment towards the Japanese economy pushed the Nikkei index to its highest level in 33 years. However, the market later experienced a correction and the Nikkei index fell from its previous highs.

The rally in Asian markets was triggered by the news that the inflation gauge had fallen more than expected in May, leading to a surge in risk-driven assets. However, the sustainability of this rally remains uncertain, pending the release of several economic readings and central bank signals throughout the week.

While factory activity marginally expanded in China, it contracted in Japan and South Korea, signaling challenges in sustaining the momentum of Asia's economic recovery. Manufacturers in Asia are also bracing themselves for the fallout from aggressive interest rate hikes by the United States and Europe.

In China, the Shanghai Shenzhen CSI 300 and Shanghai Composite indexes both rose approximately 1.2% following a private survey that revealed better-than-expected growth in China's manufacturing sector in June. Hong Kong's Hang Seng index also recorded a 1.9% increase, primarily driven by the strength of locally listed Chinese stocks. Hong Kong's retail sales in May grew 18.4% compared to the same period last year, marking the sixth consecutive month of growth. The revival of inbound tourism and positive consumption sentiment are expected to support further growth in the coming months.

However, the reading in China slowed compared to the previous month, indicating potential weaknesses in the Chinese economy. Last week's official survey showed that China's factory sector had experienced a third consecutive month of contraction in June. Sentiment was waning, and recruitment had cooled as firms grew increasingly concerned about sluggish market conditions. Market participants now expect more policy support to bolster the stuttering economic recovery, despite the central bank having already cut key lending benchmark rates in June to stimulate activity.

The impact of China's economic slowdown is being felt in Japan, where Japan's factory activity contracted in June, dragged down by weak orders for cyclical goods amid a global economic slowdown. This return to contraction came after expanding in May for the first time in seven months. The fastest decline in new orders from overseas customers in four months reflected feeble demand from China.

However, a Bank of Japan survey indicated that business sentiment in the country improved throughout the second quarter, indicating a recovering economy as more firms vowed to increase capital expenditure. These factors have contributed to increasing optimism about Japan's economic prospects this year, resulting in sharp gains in Japanese stocks over the past two months.

In South Korea, consumer inflation slowed more than expected and reached a 21-month low, primarily due to falling oil and agricultural product prices. The country's factory activity shrank at a steeper pace in June, extending its downturn to a record 12th consecutive month. However, South Korea's export downturn slowed in June, with auto exports experiencing robust rises and semiconductor declines narrowing.

Among the economic indicators, India's manufacturing industry stood out by expanding at a brisk pace in June, supported by robust demand. Although slightly slower than in May, it marked the second-fastest expansion this year, despite higher inflationary pressures.

In conclusion, the trajectory of the Nikkei index is anticipated to exhibit fluctuations and a downward trend. While positive sentiment and improved economic indicators provide some support, challenges in sustaining Asia's economic recovery, weak demand from China, and global economic slowdown pose potential risks. The market will likely be influenced by economic data and central bank policies in the coming days.

Data for Technical Analysis (5H)

Resistance : 33536.5, 33604.4, 33714.2

Support : 33316.9, 33249.0, 33139.2                               

5H Outlook

Source: Investing.com            

Buy/Long 1 If the support at the price range 33216.9 - 33316.9 is touched, but the support at 33316.9 cannot be broken, the TP may be set around 33536.5 and the SL around 33186.0, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 33536.5 - 33636.5, TP may be set around 33720.0 and SL around 33287.0, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 33536.5 - 33636.5 is touched, but the resistance 33536.5 cannot be broken, the TP may be set around 33248.4 and the SL around 33667.0, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 33216.9 - 33316.9, TP may be set around 33125.0 and SL around 33507.0, or up to the risk appetite.       

Pivot Points Jul 04, 2023 02:38AM GMT

Sources: Investing 1, Investing 2