ASIA STOCKS: US Lead Weighs on Japan and China, India's Momentum Builds
- Japanese stocks led the region lower today, unable to hold onto early gains and down -0.95%. Yesterday's run up in stocks with gains of almost 4% saw profit takers emerge Wednesday and some sector specific selling in tech following the US lead overnight. Downside looks capped for now as EMA's remain upward sloping and the NKY remains near to neutral on momentum indicators.
- The lead in from the US and Japan set China's major bourse on the back foot Wednesday, with major bourses down around -0.50%. Investors are likely positioning ahead of Chinese New Year and with the gold related volatility of last week still fresh in their minds, it seems likely that a more cautious approach will bias investors for now.
- Despite the Fin Mins assurances during a BBG TV interview, the JCI is down today, following a similar pattern to the NKY. Yesterday's gains of +2.5% has seen profit takers emerge, still cautious after the volatility of last week. The JCI is holding above 8,000, but as the 20-day EMA dips below the 50-day EMA, it suggests the short term negative momentum is outpacing the medium term trend. The JCI is holding above the 200-day EMA of 8,022, with last week's lows at 7,941.
The NIFTY 50 has opened modestly higher Wednesday, up over +3.5% since Sunday's close, having opened for the budget. The US tariff agreement continues to feed into an improved sentiment with the index above all moving averages, whilst largely neutral on momentum indicators, suggesting this positive momentum could continue.
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ASIA STOCKS: KOSPI Reaches Overbought as AI/Tech Rallies Again
The AI / tech rally continued today with key stocks like Samsung in Korea up +5.6%, TSMC in Taiwan +6.3% and Softbank in Tokyo +4% to help their respective bourses post strong gains. However the theme of China's key AI / tech stocks underperforming regional peers continues with Tencent in Hong Kong up just +0.15% today. Whilst the US ousting of Venezuela's president initially caused oil price volatility, Asian markets largely brushed off these tensions, maintaining their positivity throughout the day.
- The NIKKEI is gaining 3% today to 51,849 to be within 1% of the October high whilst the KOSPI jumped 3.10% to 4,442 and trend above the overbought line on the 14-day relative strength index. Joining in the AI / tech led party was the TAIEX which jumped +2.7% to a new high of 30,153 as it too reached overbought. There are growing calls from market observers as to the heated valuations from AI / tech stocks. SK Hynix in Korea for example is now up over 300% since its lows of April 2025.
- China's bourses were more subdued with the Hang Seng down -0.08% whilst the CSI 300 rose +1.5%, Shanghai +1.07% and Shenzhen +1.66%. For the Shanghai Comp, the rise above 4,000 to 4,011 brings the November high of 4,029 into its sights.
- SE Asia's major bourses all posted gains with the SE Thai outperforming following a much stronger than expected December PMI manufacturing. The SE Thai is up +1.7%, whilst the Jakarta Composite is up +0.65% and the FTSE Malay +0.34%
- India's NIFTY 50 continues to exhibit lower volatility relative to regional peers as it resets new highs. At 26,360 it remains up almost 20% from the March lows with gains of +0.15% Monday . The NIFTY 50 finished 2025 marginally below the 5-Year high of 23.50x, but is above the full year 2026 forecast. This suggests that from a valuation perspective, any near-term pressures on equities may not come from valuations though with the equity dividend yield at 1.26%, equity valuations relative to bonds look expensive.
FOREX: Early Risk Off Gives Way To Broader USD Gains, MXN Underperforms
USD gains have been fairly uniform against the G10 as Monday's Asia Pac session unfolded. Initial risk off drove AUD and NZD underperformance but this wasn't sustained. USD/JPY got to lows of 156.66, but now sits close to session highs, last 157.25/30, up around 0.30%. This keeps the recent uptrend intact, with upside focus likely to rest near the 158.00 (where we got to late last year post the Dec BoJ rate hike and where FX intervention rhetoric picked up from Japan officials).
- Despite the firmer US equity futures, and regional equity tone (albeit mainly focused in the tech/AI space), along with higher metal prices, the A$ has struggled to recovery ground. The pair was last around 0.6670/75. This is back close to the 20-day EMA support point, near 0.6660, which also coincides with recent lows. The 50-day EMA is further south near 0.6610.
- NZD/USD is off by a similar amount, last near 0.5750. This is close to recent lows in the pair around 0.5740, with a clean break lower potentially bringing 0.5700 back into focus.
- EUR/USD is softer as well, last 1.1680/85, levels last seen in the first half of Dec 2025. We are right around the 50-day EMA currently. GBP/USD is down 0.20% to 1.1325/30 right on the 20-day EMA support point.
- USD/MXN has risen close to 0.70%, up to 18.02/03. This keeps us close to highs from the second half of the Dec. Broader USD trends have aided the move, while remarks from US President Trump around needing to do something to curb drug flows from Mexico has likely weighed on sentiment as well. The weekend military action in Venezuela may leave the market not ruling out the possibility of US military action in Mexico to curb drug related activity.
FOREX: Dollar Index Extends Recovery, Position Adjustments In Play?
The USD BBDXY index has extended its recovery, last around 1208, +0.30% versus end Friday levels. Mid to late Dec highs in the index were around 1210.4, but more important resistance is likely around the 1219 and higher region. 1219 marks the 200-day EMA resistance point, while the index couldn't sustain +1220 levels in Nov last year. Dollar gains started out against the higher beta plays in the first part of trade, as markets were risk averse after US weekend military action in Venezuela. However, modest gains for the likes of JPY and CHF proved short lived. The G10 is now down around 0.30% across the board with little differentiation for AUD, NZD versus the safe havens.
- Cross asset catalysts for today's USD bounce aren't obvious. Risk sentiment in the equity space is mostly positive with tech related plays in Asia outperforming. Precious metals, notably silver, continue to rally as well.
- US Tsy yields are little changed so far today, but the 10yr yield is holding close to 4.18%, just off Dec highs.
- One possibility is the paring of USD shorts built up late last year, with EUR and AUD leveraged longs notable in the CFTC update to Dec 23 (+40k for AUD, +.29k for EUR)
- Looking ahead US December manufacturing ISM is released.
