Originally published by AxiTrader
After a 24 hours when we had bonds rallying and the US dollar falling, after more chat about Jerome Powell as the next Fed chair, as we had the revelations of exactly who Robert Mueller has indicted and who has already pleaded guilty, and as we learnt that the Trump Tax plan might not be the big bang everyone thought - but rather a phased-in reduction in corporate tax rates - the most remarkable thing I noticed was yesterday's price action on Asia's stock markets.
That is, even with a strong tailwind of US stock market strength Friday night, most markets in Asia were lower almost from the get-go yesterday. Taiwan was the obvious exception given companies that are part of the Apple (NASDAQ:AAPL) supply chain are listed on the Taiwanese market.
Is it a sign that Asia's stock markets are topping after some stellar runs higher? It's a little early to tell given the strength and persistence of the recent uptrends - as I highlighted with the Hang Seng's weekly move in yesterday's Asia Today.
But the daily price action across many of Asia's bourses does give me pause.
That's particularly the case with the Nikkei which could suffer a little now that USD/JPY has pulled back sharply and is at risk of a deeper retracement.
Indeed the daily Nikkei 225 chart shows the 21,800 level as a trend break. It would also see my system executed on a short order. 21,543 would be the initial target and if that breaks a move to the 38.2% retracement of this upmove would come into the frame at 20,964.
So far this morning the data from Japan has been a little underwhelming with yesterday's decent retail sales data washed away with a -0.3% print for household spending year on year. That the monthly number printed better than expected at +0.4% suggests some revisions to back data.
None of this will change the course for the Bank of Japan as I highlighted yesterday. We get the interest rate decision this afternoon and governor Kuroda and his colleagues will not want to do anything that causes USD/JPY to fall again.
So they'll stay the course of monetary accommodation even if it does look like Japan is finally escaping the economic mire and deflationary stagnation. Indeed the BoJ will stay the course because of that, to ensure this trend becomes entrenched.
Also out this morning was South Korean industrial production which was mixed with the output growth of just 0.1% in September below the bottom of the Reuters poll range - at 0.8% - by a significant margin with a print of just 0.1%.
While the won hasn't budged tomorrow's PMI is going to be interesting. As is Korean inflation.
But the big data release for the day is the Chinese official, NBS, PMI's for October. These are going to be important releases for sentiment across the region and also for how the economy is tracking. Of course, the NBS data is not as influential as the more widely watched Caixin Markit PMI's due this week. But important nonetheless.
On that front after manufacturing printed 52.4 and non-manufacturing 55.4 in September forecasters are looking for a little dip in manufacturing to 52 (non-manufacturing is not forecast). Worth noting though is that a print of 52 would still be above any print since 2012 - so on a relative basis that would still be a good result.
China NBS Manufacturing PMI (Source:TradingEconomics.com)
Turning to forex markets now and the weaker dollar has lifted the pressure off currencies like the Singapore dollar and driven the Philippine peso all the way back to test the recent steep uptrend.
What appears to be going on here is two-fold.
First the US dollar is weaker. So that is a natural positive for AsiaForex. Secondly, though the synchronised nature of global growth has some traders and investors betting on the region. I know you wouldn't know that by yesterday's price action on stocks.
But the narrative runs that if growth is synchronised and sustainable across the next couple of years then Asia stands to benefit. Not just Asia naturally but Asia and emerging markets are the focus of this narrative. That said while the narrative is that the dollar won't rally as hard as the widening in bond spreads would suggest.
So DollarAsia has a bit of an offered tone and AsiaForex goes bid. It's an interesting theory and one I have some time for. But I see a stronger US dollar before this narrative takes hold.
In the meantime, Dollar Asia is collapsing back toward support - almost across the board. Here's Offshore yuan as an example.
Many other pairs look to be pulling back towards similarly important levels. It doesn't mean the US dollar's advance in Asia has ended. It doesn't mean we are about to embark on another round of Asian currency strength necessarily.
But this price action across DollarAsia, and as the EUR/USD tests its breakdown level simply tells us this US dollar rally is not yet well entrenched in traders pysche and needs constant reinforcement to push higher.
Have a great day's trading.