2023-10-23 21:45:00
Financial markets columnist Jamie McGeever provides an update on Asian markets for the day ahead.
Investors hoping for a respite from the U.S. bond selling frenzy won their case on Monday, which should bode well for Asian markets on Tuesday, although doubts about how long the lull will last are sure to arise. manifest. Tuesday’s regional economic calendar is light, with highlights including South Korea’s producer price inflation for September, quick purchasing managers’ index data from Japan and the Australia for the month of October, and a speech from the Governor of the Reserve Bank of Australia, Michele Bullock. All of these could trigger short-term moves in the respective currencies, all of which gained ground to varying degrees against the battered dollar on Monday.
September PMIs showed that manufacturing activity in Japan and Australia contracted and service sector activity increased, although growth in Japan was the slowest of the year.
However, the overall picture remains dominated by the ebb and flow of the US Treasury market. The 10-year yield finally rose above 5.0% on Monday, but quickly fell, and the 20 basis point decline from peak to peak pushed U.S. stocks into positive territory for most of the day and dragged the dollar down.
All of this sets the stage for a “risky” day in Asia on Tuesday, right? Not necessarily.
Wall Street gave up most of its gains late in the day, with only the Nasdaq of the three major indexes closing in the green – an intuitive move, perhaps, given the tech sector’s sensitivity to interest rates.
And if the general easing of financial conditions on Monday – falling Treasury yields and weakening of the dollar – should support emerging market assets, the downward drift on Wall Street at the end of the session calls for caution.
The same goes for the latest signals from China, which continues to record significant capital outflows.
According to Goldman Sachs, capital outflows reached $75 billion in September, the highest monthly figure since 2016, up from $42 billion in August.
“The unfavorable interest rate differential between China and the United States will likely imply persistent depreciation and outflow pressures in the coming months,” Goldman analysts warned.
Chinese blue-chip stocks hit their lowest level since February 2019 on Monday and, given China’s weight in Asian and emerging market stock indexes, Tuesday could prove to be a tough day.
The MSCI Asia ex-Japan and MSCI global emerging market indices are both down around 13% over the past three months and on Monday hit their lowest level since November 11 last year.
The yen and Japanese bonds will be in the spotlight again on Tuesday after the yen briefly slipped below 150.00 to the dollar and the 10-year yield hit a new decade high on speculation the Bank of Japan which could modify its yield curve control policy later this month.
Here are the main developments that could steer markets on Tuesday:
– Japan flash manufacturing PMI (October)
– Australia flash PMI (October)
– Producer price inflation in South Korea (September)
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