People walk past the headquarters of the People’s Bank of China (PBOC), the central bank, in Beijing, China, September 28, 2018. REUTERS/Jason Lee/File Photo ACKNOWLEDGE RIGHTS
Oct 13 (Reuters) – A look at the day ahead in Asian markets from financial markets columnist Jamie McGeever.
As investors digest the market and policy implications of this week’s U.S. inflation numbers, Asia’s focus on Friday will be on China’s producer and consumer price inflation and the extent to which it suggests a cooling of broader deflationary pressures.
Given Thursday’s decline on Wall Street, sparked by a rise in long-dated U.S. bond yields after a weak 30-year auction, the mood is likely to be one of caution at best.
China’s PPI and CPI head a packed Asian economic calendar that also includes Chinese trade data, third-quarter GDP and a rate decision from Singapore, unemployment from South Korea and wholesale inflation from India.
China’s economy has been hit on multiple fronts this year. The currency has fallen to its lowest level in 16 years, investors have dumped the country’s stocks and bonds, the real estate sector is imploding and disinflation is threatening to turn into outright deflation.
Annual producer price inflation has been negative for a year, although consumer inflation only briefly fell below zero in July. September’s PPI and CPI readings on Friday will be closely watched for signs that the economy is picking up again.
Economists polled by Reuters expect an annual PPI rate of -2.4%, down from -3.0% in August, and an annual CPI rising to 0.2% from 0.1%. Slow progress.
However, the overall market picture continues to be dominated by US yields and the Fed’s policy outlook.
Wall Street plunged on Thursday after selling 30-year Treasury bonds. The high interest rate demanded by investors was around 4 basis points above the then prevailing market interest rate, the largest “tail” in almost two years.
The ebb and flow of investor sentiment this week, focused on the direction of Treasury yields and the US yield curve, is telling.
Essentially, it doesn’t matter whether the curve has become steeper or flatter. What matters is whether the moves were triggered by bond buying or selling, be it on the short or long end.
On Thursday, the yield curve flattened the most in a single day since March, a “bullish” flattening triggered by heavy buying of long-dated bonds. Stocks rose. On Friday, the bear curve steepened, led by heavy selling at the long end. Stocks fell.
So at the end of the week, markets are at the mercy of this back-and-forth over the US interest rate outlook: strong signals from Fed officials and Fed minutes that rate hikes are likely over, contrasted with economic data that still refuses to play along.
However, a clear winner is the dollar. It rose 0.7% on Thursday – its best day since July – pushing the yen back toward the key 150.00 per dollar area. Should this level be breached, Japanese intervention speculation is likely to be in turmoil on Friday.
Here are key developments that could give markets more direction on Friday:
– China PPI and CPI inflation (September)
– China trade (September)
– Singapore Policy Decision and GDP (Q3)
By Jamie McGeever; Editing by Josie Kao
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