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Oct 12 (Reuters) – A look at the day ahead in Asian markets from financial markets columnist Jamie McGeever.
Unexpectedly high U.S. producer price inflation numbers on Wednesday could blunt this week’s rally in emerging market and Asian stocks, with local attention turning to consumer inflation in India on Thursday.
India’s CPI for September tops the regional calendar, which also includes Indian trade data, bank credit, corporate goods inflation and machinery orders from Japan, as well as the latest snapshot of industrial production from Malaysia.
At the corporate level, Fast Retailing – the Japanese operator of global clothing chain Uniqlo – is expected to report full-year profit of 374.6 billion yen ($2.52 billion), which would set a new record.
However, the trading tone in Asian markets on Thursday could be a little more cautious than some of Wednesday’s headline moves suggest and could also depend on the US yield curve.
Emerging market stocks had their best day since July 25 on Wednesday and the MSCI Asia ex-Japan index rose over 1%, reaching its best day in more than a month.
Most of these gains were driven by a strong short-covering rally in US Treasuries, which triggered a significant decline in Treasury yields around the world, particularly at the back end of the curve.
But the ugly inflation data from US producers at the US open on Wednesday – monthly, annual, headline and core readings were all higher than expected – was a reality check for those betting that the Fed will do so well with the rate hike how finished.
The US yield curve flattened more on Wednesday than on any other day since March 16, but for “good” and “bad” reasons.
The initial “bullish” flattening in Asia and Europe, led by heavy buying of long-dated bonds that pushed long-term yields sharply lower, turned around after US PPI data turned into a “bearish” flattening, led by selling of two-year bonds and an increase in short-term returns.
However, after the release of the latest Fed minutes, this situation reversed, paving the way for a late rally on Wall Street and a positive close for the three major indices.
The “pivot” message from Fed officials has been quite strong and consistent this week, and Gov. Christopher Waller was the latest to beat the drum on Wednesday. The minutes also suggested that policymakers are becoming more cautious on interest rates.
But the PPI number could give traders in Asia food for thought, especially with the US CPI due out later on Thursday.
India’s CPI report, meanwhile, is expected to show a sharp fall in annual inflation last month to 5.50% from 6.83%, with moderate food price increases and government subsidies offsetting a rise in crude oil costs.
Here are key developments that could give markets more direction on Thursday:
– CPI Inflation in India (September)
– Japanese machine orders (August)
– IMF and World Bank meetings in Marrakech, Morocco
By Jamie McGeever; Editing by Josie Kao
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