ASX eyes record high, China A50 on track for best week of the year

US growth was revised higher to 3% in Q2, up from 2.5% previously. This shows a resilient economy and should put to bed any fears of a recession (not that it will). PCE prices cooled to 2.5% in Q2, down from 3% previously, which together keeps the soft landing and Fed-easing narratives alive.

I had been seeking some mean reversion lower on Asian indices, but Beijing had other plans with their latest round of stimulus. China has vowed to unleash “necessary fiscal spending” in a bid to meet its 5% growth target this year, and it seems markets believe them this time. Hang Seng futures exploded above the May high and the 20k handle and is now on track for its best week of the year. The China A50 is up 16% this week alone, which is its best week since in 14 years. Copper futures rose 4% to a 10-week high.

S&P 500 futures reached a fresh all-time high during Asian trade, although around half of those gains were handed back by the cash market close.

Bitcoin saw a false break of the August high, promoting a neutral stance as it has already reached my 65k target. Gold also reached yesterday’s $2700 target before the inevitable shakeout ensued. Like it or loath it, gold bugs keep on buying dips, however small.

Headlines that Saudi Arabia had abandoned its unofficial $100 oil target helped WTI crude oil fall in line with yesterday’s bearish bias, and now trades beneath my $68 target. And it may have traded a lot lower were it not for the risk-on rally on China’s latest stimulus.

Events in focus (AEDT):

Tokyo CPI can provide a 3-week on Japan’s nationwide CPI, so any signs of hotter consumer prices could strengthen the yen (weaken USD/JPY) – at least to a degree – on bets of a more hawkish BOJ.

With some speculating that the ECB might be forced to cut again this year, softer sentiment figures form the ESI report could weigh on EUR/USD.

However, the key event is clearly PCV inflation. It is not the most volatile of reports so we generally do not see large deviations from the consensus. Core PCE is expected to remain stable at 0.2% m/m, although any figure less than last month’s 2.6% y/y print will be taken as a sign that the Fed have inflation under control and potentially weaken the USD. Also keep an eye on super core PCE (0.2% prior), personal income (04% prior).

• 09:30 – JP CPI (Tokyo)
• 11:30 – RBA financial stability review
• 11:30 – CN industrial profit
• 15:00 – JP leading, coincident index
• 19:00 – EU ESI (European Sentiment Index)
• 22:30 – US core PCE price index, personal income
• 22:20 – CA GDP
• 00:00 – US consumer sentiment (Michigan University)

ASX 200 futures technical analysis:

The ASX 200 cash market enjoyed its best day in two weeks on Thursday and closed back above 8200. We can expect a gap higher given ASX 200 futures continued higher overnight, and prices are now less than a typical day’s trade from its all-time high.

We have a US inflation report looming, and that could suppress volatility today in Asia. If China’s equity markets extend their already-oversized gains today, perhaps the ASX can get a tailwind and have a crack at tis all-time high. But for it to break and hold above 8310, we likely need to see a soft set of inflation figures and resumption of gains on Wall Street.

Take note of the bearish divergence on the daily RSI. So as per usual, I am a little suspicions of this market simply breaking to a new high and will be seeking short opportunities around the 8300 level if prices rise ahead of US PCE data.

China A50 futures technical analysis:

The gains seen this week on China’s A50 index have been truly spectacular, up 16% in just four days. The weekly chart shows that this weeks rally has more than eradicated the YTD losses and now sits nicely above the May high and 13,000 handle.

But we should simply expect a continuation of its current trajectory. Unless Beijing have another round of stimulus which is bigger and better than we’ve already seen, I suspect any upswings will become gradually smaller. Of course, some late-comers may help bid it higher in hopes that it will rise strongly out of the gates, but I feel bulls should remain nimble at these highs.

The 13k handle and May high seems like a logical area for bulls to seek a cheeky swing long, but with so many metric stretched they may want to keep their stops tights and targets low.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge