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China Tax Cut Bets Weakened With Asia Stocks. Nikkei 225 May Rise

China Tax Cut Bets Weakened With Asia Stocks. Nikkei 225 May Rise

Daniel Dubrovsky, Strategist

Asia Pacific Market Wrap – Xi Jinping, Shanghai Composite, Nikkei 225, New Zealand Dollar

  • Risk aversion extends into Tuesday’s Asia Pacific trading session as global stock selloff lingers
  • Prospects of major tax cuts in China fell apart during highly anticipated speech from Xi Jinping
  • Nikkei 225 overshadowed by positive RSI divergence, NZD climbs post domestic business survey

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As expected Asia Pacific benchmark stock indexes traded broadly lower on Tuesday, falling after the S&P 500 closed beyonda 14-month low during Wall Street’s trading session. However, during the Asia session market mood temporarily improved heading into a closely watched speech from China’s President Xi Jinping. Markets were looking for signs of additional stimulus measures to boost the economy.

This is because about an hour before his speech, China Daily Reports noted that the country was going to unveil major tax cuts. That optimism quickly fell apart later in the day during his speech when it became clear that this would not be the case. China’s President did not hint towards any fiscal boosting measure to prop up the economy.

The Shanghai Composite declined about 1.13% heading towards its lowest close seen this month thus far. Meanwhile in Australia, which has a major trading relationship with the world’s second largest economy, the ASX 200 declined about 1.22%. The Nikkei 225 and KOSPI also fell despite announcements from their respective countries to revive their auto industries with fiscal boosting measures.

Looking at FX, the pro-risk New Zealand Dollar held onto gains from supportive domestic business confidence data. Otherwise, the anti-risk Japanese Yen edged higher against its major counterparts as traders unwound carry trade exposure. This is largely thanks to the extraordinary cheap cost to borrow Yen, making it a prime funding currency.

With that in mind, given a lack of notable economic event risk for the remainder of the day, FX will probably look to risk trends for their next moves. S&P 500 futures are more or less little changed heading into the European and US sessions. As the Fed rate decision approaches, fewer and fewer traders may find themselves taking large bets ahead of such critical fundamental risk. This may result in calmer sessions ahead.

Nikkei 225 Technical Analysis

On the daily chart, declines in the Nikkei 225 leave it sitting right on top of a familiar range of support between 21,035 and 20,950. Positive RSI divergence still overshadows the index, hinting of a turn higher that may be in the cards ahead. In that scenario, I would watch for a close above the near-term descending resistance line from earlier this month. Otherwise, extending its decline would place support at 20,347 next.

Nikkei 225 Daily Chart

China Tax Cut Bets Weakened With Asia Stocks. Nikkei 225 May Rise

Chart created in TradingView

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--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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