Asia Morning Update: Walking on sunshine

Despite the rally seen at the start of the week, Asian equity markets may still have mild upsides to reap. Watch however for the pressure from softer crude prices today.

Data-triggered upsides

There appears to be little to halt the current confidence in the global economy with Eurozone’s manufacturing conditions and US factory growth joining China’s PMI at multi-year high in their latest releases. Not to forget, we have also seen the strong Q3 business confidence in Japan on Monday.

The amalgamation of which suggests that economies around the world remain broadly fired up and the cyclical growth had not run its course. The MSCI World Index last ended Monday at a record close, same goes for the S&P 500, Dow Jones and NASDAQ indices.

On the currencies end of matters, the same applies as the US dollar changed course. The USD index took off further above its 50-day moving average, one that has capped prices since late April. Do watch for data performances into the end of the week though, as September’s payrolls number may represent headwinds for both equities and currencies in the US with soft figures expected.

Having said the above, some pressure may have materialised for the energy sector. Higher OPEC output for the month of September, particularly from exempted producers, had dented bullish sentiment within the market on Monday.

WTI futures slipped approximately 2.0% overnight, trading just above the $50 psychological support this morning. The step into a seasonally weak quarter may make for more bearish sentiment, though for the near-term the market is looking for a decline in the high frequency US inventory update.

Asia markets

The set of positive leads does contribute to an upsides bias for Asian markets in the day. Early moves in the region have so far been seen with mixed returns, the Nikkei 225 once again the beneficiary of a softer yen. Notably, the Hong Kong HSI is expected to return today, playing catch-up to the rest of the region with approximately 0.5% gain at the start of the session.

Conversely, the local Singapore market may experience slight pressure despite the positive purchasing managers’ index release yesterday. September’s print arrived at 52.0 yesterday, improving from August’s 51.8. The 6-year high print largely trends in line with China’s official PMI, reinforcing the growth momentum for the key manufacturing sector.

The day ahead may see the softer crude prices dragging down prices. Expect the resistance at 3270 to continue serving as a cap for prices and watch for a slip back below 3250. Look ahead to the RBA meeting, the key event for Tuesday.