Nikkei rips higher despite softer China data

While end-of-month flows may have played a part, risk assets have performed very well today during the Asian time zone, led by the Nikkei, despite mixed PMI data from China.

Japan flag

China's NBS Services PMI dropped by 7.3ppt to 45.2, the lowest reading since February 2020, as the spread of the Delta variant and China's Covid-zero strategy triggered lockdowns that weighed on travel accommodation, catering, and entertainment.

The Manufacturing PMI fell to 50.1 in August vs. consensus expectations of 50.2. The production and construction sub-index held up well, indicating limited impact from the Covid outbreak on production and construction activity. As the Delta outbreak in China is now under control, a rebound in the China PMI data is expected in September. 

There is a growing sense that Federal Reserve Chairman Powell's speech at Jackson Hole was more dovish than expected. The severing of the link between tapering and rates lift-off suggests rates stay lower for longer. 

Clouding the Japanese domestic picture, a fifth wave of the virus and a ruling party leadership election on September 29 after Prime Minister Yoshihide Suga's popularity plunged due to scandals and his handling of the Covid-19 pandemic. 

Nonetheless, the Nikkei futures have closed over 1.50% higher today at 28180, just below a layer of short-term horizontal resistance at 28250/270. Should the Nikkei break and close above 28250/70 and then above trend channel resistance at 28,700, it would signal the correction from the February high is complete, and the uptrend has resumed. 

Long Nikkei positions should be considered in this instance, targeting a retest and break of the 30715 year-to-date high. 

Nikkei Daily Chart

Source Tradingview. The figures stated areas of August 31, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

More from Equities

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account