- The US Dollar turns flat with US equities going for the positive tone.
- China markets are back online after the Golden Week closure, sparking a surge in volatility.
- The US Dollar Index trades above 102.00, and is looking for direction with a small fade still at hand.
The US Dollar (USD) is trying to brush off the small fade that tried to put pressure on the Greenback for a second day in a row after investors welcoming China back to the markets. It is not a warm welcome, with the Chinese Hang Seng 300 Index down over 9% at its closing bell. A surge in risk-off is taking place, with European stocks on the backfoot as well.
The economic calendar is light and should not create big waves on Tuesday, with the Goods Trade Balance and the Economic Optimism Index not expected to be market movers. Comments from Federal Reserve Bank of Atlanta President Raphael Bostic and Federal Reserve Vice Chair Phillip Jefferson, however, could be.
Daily digest market movers: US trade balance sees deficit shrink
- China has reopened again after a week of festivities for the Golden Week. The festive mode has rather quickly dampened, with the Hang Seng Index correcting near 10% at its closing bell. The negative reaction spilled over into European markets and some risk-off across the board.
- At 10:00 GMT, the National Federation of Independent Business (NFIB) released its Business Optimism Index for September, which raised to 91.5 from 91.2 in August, falling short of economist expectations of 91.7.
- The Goods and Services Trade Balance data from August revealed a larger than expected recovery in the deficit. The Actual number came in at $-70.4 billion against the previous deficit of $-78.8 billion and better than the expected $-70.6 billion estimate.
- The TechnoMetrica Institute of Policy and Politics will release at 14:00 GMT the Economic Optimism Index for October. A small uptick to 47.2 is expected, coming from 46.1, though indicating ongoing consumer pessimism.
- At 16:45 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic (2024 FOMC voting member) speaks about the US economic outlook at the Atlanta Consular Corps luncheon. At 22:30 GMT, Federal Reserve Vice Chair Phillip Jefferson (2024 FOMC voting member) delivers a speech at an event organized by the Davidson College in Davidson, North Carolina.
- European equities are off their lows, though still trading in red, while US equities are gearing up to start the US trading session in green.
- The CME Fedwatch Tool shows an 88.7% chance of a 25 basis point (bps) interest rate cut at the next Fed meeting on November 7, while 11.3% is pricing in no rate cut. Chances for a 50 bps rate cut have been fully priced out now.
- The US 10-year benchmark rate trades at 4.05%, the highest level since mid-August.
US Dollar Index Technical Analysis: A very small fade after all
The US Dollar Index (DXY) is easing a touch for the second day in a row. The sharp rally from last week is seeing some profit-taking for the second day in a row. The fact that the US Dollar can not gain further even with the risk-off tone from Asia could mean that a short squeeze has been completed and might see a slow grind lower from here.
The psychological 103.00 is the first level to tackle on the upside. Further up, the chart identifies 103.18 as the very final level for this week. Once above there, a very choppy area emerges, with the 100-day Simple Moving Average (SMA) at 103.32, the 200-day SMA at 103.76, and the pivotal 103.99-104.00 levels in play.
On the downside, the 55-day SMA at 101.99 is the first line of defence, backed by the 102.00 round level and the pivotal 101.90 as support to catch any bearish pressure and trigger a bounce. If that level does not work out, 100.62 also acts as support. Further down, a test of the year-to-date low of 100.16 should take place before more downside. Finally, and that means giving up the big 100.00 level, the July 14, 2023, low at 99.58 comes into play.
US Dollar Index: Daily Chart
AsianStocks FAQs
Asia contributes around 70% of global economic growth and hosts several key stock market indices. Among the region’s developed economies, the Japanese Nikkei – which represents 225 companies on the Tokyo stock exchange – and the South Korean Kospi stand out. China has three important indices: the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. As a big emerging economy, Indian equities are also catching the attention of investors, who increasingly invest in companies in the Sensex and Nifty indices.
Asia’s main economies are different, and each has specific sectors to pay attention to. Technology companies dominate in indices in Japan, South Korea, and increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also big in China and Japan, with a strong focus on automobile production or electronics. The growing middle class in countries like China and India is also giving more and more prominence to companies focused on retail and e-commerce.
Many different factors drive Asian stock market indices, but the main factor behind their performance is the aggregate results of the component companies revealed in their quarterly and annual earnings reports. The economic fundamentals of each country, as well as their central bank decisions or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also impact equity markets. The performance of US equity indices is also a factor as, more often than not, Asian markets take the lead from Wall Street stocks overnight. Finally, the broader risk sentiment in markets also plays a role as equities are considered a risky investment compared to other investment options such as fixed-income securities.
Investing in equities is risky by itself, but investing in Asian stocks comes along with region-specific risks to be taken into account. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their political stability, transparency, rule of law or corporate governance requirements may diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also have an impact on the valuation of Asian stock markets. This is particularly true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.
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