[1/2]Pedestrians walk past the main entrance of the Reserve Bank of Australia building in central Sydney, Australia October 3, 2016. REUTERS/David Gray/Archive Photo
July 4 (Reuters) – A look at the day ahead in Asian markets from financial markets columnist Jamie McGeever.
The Reserve Bank of Australia takes center stage on Tuesday, with consensus economists leaning slightly toward expectations for benchmark cash to rise 25 basis points to a 12-year high of 4.35%.
South Korean CPI in June will be another key regional focus for Asian markets, where trading activity will be significantly lower than usual due to the US 4th July holiday
Investors appear to have entered the new trading quarter with a fairly aggressive risk appetite. Global stocks rose for the fifth time on Monday, Pan-Asian stocks ex-Japan rose 1.5% for their best day in a month, and a nearly 7% rally in Tesla shares helped Wall Street lag floated above.
High yield bond indices are hovering at their highest levels in months – particularly US junk bond prices – suggesting investors see no immediate threat to markets or the economy from higher interest rates, bond yields and borrowing costs.
They’re also ignoring the warning signs the US yield curve is blowing, as the spread between 2-year and 10-year yields rose to 110 basis points on Monday, the deepest inversion since 1981. An inverted curve usually signals an imminent recession.
But that’s for another day, it seems.
Traders in Asia will keep their focus on Australia and the RBA on Tuesday. According to a Reuters poll, the decision is balanced: 16 out of 31 economists polled expect the central bank to hike its official interest rate to 4.35%, and the remaining 15 forecast a pause.
Another raise would be the 13th of the RBA’s tightening cycle. unlucky for some? In interest rate swap markets, there is only a one in three chance of a rate hike and around a two in three chance of no rate hike.
Inflation slowed to 5.6% in May from 6.8% in April, but is still well above the RBA’s target range of 2-3%, suggesting further tightening may be needed. However, it was the sharpest drop in two years and the RBA has already surprised markets with a pause in April.
In another Reuters poll, economists said they expect annual consumer price inflation in South Korea to have slowed to 2.85% from 3.30% in June. That would be the lowest level since September 2021.
Figures on Monday showed that factory activity in South Korea fell for the twelfth straight month in June, a record.
Here are key developments that could give markets more direction on Tuesday:
– Interest rate decision for Australia
– Inflation in South Korea (June)
– Trade balance Germany (May)
By Jamie McGeever; Edited by Marguerita Choy
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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and impartiality under the Trust Principles.
Jamie McGeever
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