2023-10-11 21:45:00
Financial markets columnist Jamie McGeever provides an update on Asian markets for the day ahead.
Unexpected U.S. producer price inflation figures on Wednesday could cool this week’s rally in emerging markets and Asian stocks, with local attention turning to consumer price inflation in India.
India’s September CPI leads the regional calendar, which also includes Indian trade data, bank lending, Japan’s business goods inflation and machinery orders, and the latest snapshot of industrial production in Malaysia.
On the corporate front, Fast Retailing – the Japanese operator of global clothing chain Uniqlo – is expected to report annual profit of 374.6 billion yen ($2.52 billion), which would be a new record.
But the tone of trading in Asian markets on Thursday could be a little more cautious than some of the moves that made headlines on Wednesday indicate, and could also depend on the U.S. interest rate curve.
Emerging market stocks had their best day since July 25 on Wednesday and the MSCI Asia ex-Japan index rose more than 1% to its best day in more than a month.
Most of these gains were fueled by a powerful short-covering rally in U.S. Treasuries, which triggered a significant decline in government bond yields around the world, particularly at the tail end of the curve.
But sobering inflation data from U.S. producers as U.S. markets opened Wednesday – monthly, annual, headline and core figures were all higher than expected – provided a reality check for those betting the Fed has almost finished raising interest rates.
The US yield curve flattened more on Wednesday than on any other day since March 16, but for “good” and “bad” reasons.
Initial “bullish” flattening in Asia and Europe, led by massive long-term bond buying, which pushed long-term yields lower, reversed after US PPI data into a “bearish” flattening, led by the selling of two-year bonds and the increase in short-term yields. But the situation reversed again after the release of the Fed’s latest minutes, paving the way for a late rally on Wall Street and a positive close for the three major indexes. The “pivotal” message from Fed officials this week has been quite loud and consistent, and Gov. Christopher Waller was the latest to beat the drum on Wednesday. The minutes also suggested that policymakers are becoming more cautious about rates.
But the PPI figure could give traders in Asia pause, especially with US CPI due later on Thursday.
India’s CPI report, meanwhile, is expected to show a sharp decline in annual inflation last month to 5.50% from 6.83%, moderation in food price rises and government subsidies having offset an increase in the cost of crude oil.
Here are the main developments that could steer the markets on Thursday:
– India Consumer Price Index (CPI) (September)
– Machine orders in Japan (August)
– IMF and World Bank meetings in Marrakech, Morocco
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