[1/2]An aerial view shows cars for export at a port in Yantai, Shandong province, China, May 3, 2023. China Daily via REUTERS/File Photo
June 30 (Reuters) – A look at the day ahead in Asian markets from financial markets columnist Jamie McGeever.
Asian markets closed an eventful first half of the year on Friday. Investors are looking forward to a slew of quality economic data, particularly from China and Japan, and are digesting a further rise in global interest rate expectations.
China’s Purchasing Managers’ Index reports will provide the first glimpse of factory and service sector developments in the region’s largest economy in June, while Tokyo inflation is likely to be the most important of a range of indicators out of Japan that also include unemployment and industrial production.
Major releases from South Korea, Asia’s fourth largest economy, include Retail Sales, Industrial Production and Services Sector Growth for May.
Chinese PMIs are under particular scrutiny. Shrinking activity in manufacturing is offset by expansion in services, but overall growth is weak and authorities are under pressure to intervene with significant monetary or fiscal stimulus. Or both.
The yuan is at a seven-month low and slips to a fresh 15-year low against the dollar, trade with the rest of the world slows, inflation evaporates and growth forecasts are revised down.
The selected indicators for Japan appear to be consumer inflation in Tokyo excluding fresh food prices for June and what signals this could send to monetary policy. Economists expect the annual rate to rise to 3.3% from 3.2%.
The Bank of Japan, like its Chinese counterpart, is swimming against the global tide of tighter monetary policy, which is the main reason the yen is also at a seven-month low against the dollar, fueling speculation of BOJ intervention.
In fact, the yen is near a 50-year low on a real effective exchange rate basis. Financial conditions in Japan are the loosest since 1997, according to Goldman Sachs, with stock prices hovering at 33-year highs and interest rates still negative.
The Goldman index of financial conditions in emerging markets is at its lowest in 16 months, in contrast to developed economies, where interest rates and bond yields, as well as borrowing costs of all stripes, are rising sharply.
The US two-year Treasury yield rose 15 basis points on Thursday, the sharpest rise in a month, and traders are now expecting at least one more quarter-point rate hike this year. Fed Chair Jerome Powell indicated this week that he expects two rates to be implemented.
The good news is that interest rate expectations are being raised because the economy is strong. Thursday’s U.S. data was unequivocally positive — a sharp upgrade in first-quarter GDP growth and the sharpest fall in weekly jobless claims since 2021 suggest there’s no landing, let alone a “soft landing.”
But growth and profits will eventually suffer. The US yield curve continued to invert Thursday, coming within a few basis points of March’s 40-year low. This is a warning sign that investors believe something is about to “break” somewhere in the future.
Here are key developments that could give markets more direction on Friday:
– China PMIs (June)
– Japan – Tokyo Inflation (June)
– US PCE inflation (May)
By Jamie McGeever;
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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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