By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets from financial markets columnist Jamie McGeever.
The shadow that China’s economic woes are casting over Asian markets is growing darker, but there are also some bright spots: the Fed is nearing its peak, US bond yields may have peaked and the dollar is at its weakest since three weeks.
This momentum could gain momentum later this week if US inflation data for June fall below already weak analyst expectations. All else being equal, this would be a tailwind for Asian equities, bonds and currencies.
Several Fed officials said on Monday that interest rates need to be raised further to contain inflation, but the end of the tightening cycle is in sight. A survey by the New York Fed on consumer and inflation expectations was also “risk-friendly”.
With no major economic, political or corporate events on the Asian calendar on Tuesday, investors should again focus on the outlook for US interest rates and China’s growth and stimulus plans.
Sentiment towards Asian equities has been mostly bearish over the past few months, with the exception of Japan, but a pause in selling on Monday tempered sentiment somewhat. Chinese and broader Asian stocks rose for the first time in four sessions, while the yuan and yen surged to two-week highs against the dollar.
The dollar’s fall will quell speculation that the Japanese authorities are poised to intervene to support the yen, and a firmer yuan will halt a spiral of weakening currency, capital outflows and pressure on the central bank to intervene.
But China’s latest inflation figures on Monday were sobering. Annual consumer price inflation was zero in June and producer price inflation fell to -5.4%, the worst deflation since 2015.
Both readings fell short of economists’ expectations, sparking a further decline in the Citi index of Chinese economic surprises to a two-year low. The index has risen just four times in the past 60 trading sessions and is now down 11 straight weeks, the longest streak of underperformance since 2010.
The story goes on
Chinese bank stocks, as measured by the Hong Kong-listed Hang Seng Mainland Banks Index, fell for the fifth day on Monday, but a potentially significant reversal in the tech sector helped lift overall stock sentiment.
Analysts believe that China’s nearly $1 billion fine against Ant Group could put an end to the fintech giant’s woes and give investors hope that the regulatory crackdown on China’s broader tech sector is over is.
The regional economic data calendar is light on Tuesday with only Australian consumer confidence and business sentiment and Philippine trade numbers up for debate.
Here are key developments that could give markets more direction on Tuesday:
– Consumer Confidence in Australia (July)
– Business climate in Australia (June)
– Inflation in Germany (June, final)
(By Jamie McGeever; Editing by Marguerita Choy)
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