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Asia on Alert: US CPI and Brent Crude Surge Raise Concerns

Asia is on alert, Asian markets brace for volatility as US CPI data and Brent Crude prices surge, impacting regional economies.

  • Tech Stocks Slide: US tech stocks stumble as Apple’s shares drop 1.7% post an uninspiring product launch.
  • CPI Anticipation: The market awaits US CPI data with expectations of 3.6% headline inflation and 4.3% core inflation, raising questions about future Fed rate decisions.
  • Mixed Asian Markets: Asian markets open with varied performance; Nikkei gains 0.27%, ASX falls 0.62%, and KOSPI rises 0.44%, amid higher oil prices and a stable US dollar.

Asia on Alert: US CPI and Brent Crude Surge Raise Concerns

Major US indices weakened overnight as big tech stocks stumbled despite stable Treasury yields, resulting in a 1.7% drop in Apple’s share price following an underwhelming product launch. This modest increase in iPhone prices suggests ongoing soft demand in the global smartphone market, despite improved global shipments in 2Q 2023.

Tonight, all eyes are on the US Consumer Price Index (CPI) data, where the focus is expected to be on rising headline pricing pressures and decreasing US core inflation. Headline inflation is anticipated to rise to 3.6% from the previous 3.2%, while core inflation is predicted to moderate to 4.3% from 4.7%. The key question is whether a softer core inflation reading will encourage the Fed to maintain interest rates into the next year.

The US dollar remains stable, and US equity futures are in a holding pattern. Of note is the SPDR S&P Semiconductor ETF, which may be forming a potential head-and-shoulder pattern. The 193.00 level could be pivotal for buyers to defend; failure to do so might lead to a retest of the May 2023 bottom at the 174.00 level. The weekly relative strength index (RSI) currently stands at a neutral 50, suggesting a forthcoming decision point.

Asia Open

Asian stock markets are poised for a mixed opening: Nikkei +0.27%, ASX -0.62%, and KOSPI +0.44% at the time of writing. Elevated oil prices may maintain a cautious atmosphere, especially since most regional economies are net oil importers. The lack of significant movement in the US dollar may also encourage a wait-and-see approach ahead of the US CPI release. Chinese equities remain subdued, with investors monitoring economic data releases in China for potential downside surprises, which have been a trend in recent months.

In South Korea, the unemployment rate reached a new record low in August (2.4% compared to the previous 2.8%), possibly prompting the Bank of Korea (BOK) to maintain a hawkish stance with policy flexibility for further tightening if necessary. However, the USD/KRW exchange rate remained stable, reflecting reservations about growth risks that might justify keeping rates unchanged. In Japan, wholesale inflation for August marked its eighth consecutive month of moderation, allowing the Bank of Japan (BoJ) more room for a gradual policy normalization process.

The USD/JPY has resumed its climb after retesting the 145.80 support level, reinforcing its significance for buyers. An ascending channel pattern has persisted since the beginning of the year, indicating an overall upward trend. Additionally, surpassing the early-September high could bring the 149.90 level into focus, a key level for yen-buying intervention by the BoJ in October 2022.

On the Watchlist: Brent Crude Prices Continue to Rise, Reaching a 10-Month High

After a brief consolidation period in the past week, oil prices have once again reached a 10-month high, successfully holding the critical US$90.00 level for Brent crude. Despite a slight increase in US crude oil API data, the trend from official inventory data (EIA) in the past month still indicates significant drawdowns, and US Strategic Petroleum Reserve (SPR) inventories remain near a 40-year low. It would likely take more than a single data point to reverse the narrative of tight supplies.

OPEC’s commitment to its optimistic forecast for global oil demand next year offers further support to the upward trend in oil prices since July. While technical conditions are approaching near-term overbought territory, the US$90.00 level remains a crucial immediate support, with prices setting their sights on a retest of the US$98.00 level ahead.

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