Disappointing Rate Cut Dampens Asian Stocks

Japan's stocks rose after the close on Tuesday, driven by increases in the Paper & Pulp, Transportation Equipment, and Insurance sectors. Meanwhile, Asian stocks experienced a decline on Tuesday as China's interest rate cut fell short of expectations and investors awaited further details regarding Beijing's plans to boost its faltering economic recovery. The rate cut was the first in 10 months and was aimed at supporting the sluggish economic growth.

The one-year and five-year loan prime rates (LPR) were reduced by 10 basis points each. Although the rate cut was largely expected by the market, investors were disappointed by the smaller-than-expected reduction. Asian stocks continued to decline, as reflected in MSCI's Asia-Pacific shares index falling by 0.75%.

China's struggling manufacturing sector and stagnant property market have contributed to the country's economic challenges. The decline in economic indicators over the past two months has prompted the People's Bank of China (PBOC) to take action. The rate cuts were part of a series of measures by Beijing to address the slowing recovery, deflation risks, property market issues, and high youth unemployment.

Major investment banks, including HSBC and Goldman Sachs, have also revised their growth forecasts for China, citing concerns about the property market. HSBC lowered its GDP growth forecast to 5.3% for 2023, while Goldman Sachs reduced its forecast to 5.4% for this year and 4.5% for 2024. The downturn in the property market has been a key factor in these downward revisions.

The PBOC's rate cut is expected to provide some stimulus, but more measures may be required if the economic weakness persists. China's economic growth has been hindered not only by sluggish business activity but also by a disinflationary trend caused by weak consumer and business spending.

The overall decline in Asian stocks and the uncertainties surrounding China's economic recovery have had an impact on deal activity in the region's equity capital markets. Despite hopes for a rebound fueled by stimulus measures and stabilizing interest rates globally, deal volumes in the first half of the year reached their lowest level in four years. Japan's financial regulator has reportedly engaged in discussions with domestic banks about potential risks related to China and the geopolitical situation, ensuring that banks are prepared to respond if tensions escalate.

In addition to concerns about China's economic outlook, market sentiment was also influenced by the upcoming testimony of Federal Reserve Chair Jerome Powell, which could provide insights into future interest rate hikes and the overall economy. Powell's testimony before Congress on Wednesday was anticipated with caution, as the Federal Reserve has recently offered mixed signals about its policy direction.

The combination of factors, including China's economic challenges, uncertainties about interest rate hikes, and geopolitical tensions, has dampened market sentiment and affected the appeal of high-risk assets in Asian markets.

Data for Technical Analysis (5H)

Resistance : 33141.9, 33163.1, 33197.5

Support : 33073.1, 33051.9, 33017.5                                     

5H Outlook

Source: Investing.com      

Buy/Long 1 If the support at the price range 32993.1 - 33073.1 is touched, but the support at 33073.1 cannot be broken, the TP may be set around 33141.0 and the SL around 32968.0, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 33141.9 - 33221.9, TP may be set around 33250.0 and SL around 33043.0, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 33141.9 - 33221.9 is touched, but the resistance 33141.9 cannot be broken, the TP may be set around 33047.5 and the SL around 33247.0, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 32993.1 - 33073.1, TP may be set around 32957.5 and SL around 33172.0, or up to the risk appetite.       

Pivot Points Jun 21, 2023 01:31AM GMT

Sources: Investing 1, Investing 2