Jamie McGeever
(Reuters) – Future outlook for Asian markets.
Global markets were mixed on Monday, while Asian markets opened without clear guidance on Tuesday, with investors still looking to U.S. earnings, comments from Federal Reserve officials and signals from China’s Third Plenary Session for guidance.
There are important events and data releases that will move asset markets around the world, including the Indonesian central bank’s interest rate decision and guidance, and New Zealand’s inflation rate.
But other than that, there are good and bad points.
For example, gold rose 2% to a record high of $2,469 an ounce on Tuesday, while the dollar strengthened and the 10-year Treasury yield fell to a four-month low of 4.16%.
The US yield curve also halted its recent sharp upward trend. On Monday it turned positive for the first time since January, but the 2y/30y Treasury curve inverted again on Tuesday. The 6 basis point inversion was fairly steep, but there was no obvious catalyst.
Asian stocks could gain from Wall Street’s gains after figures showed U.S. retail sales in June were much stronger than economists expected. The Dow Jones Industrial Average closed at a record high, but big technology companies failed to close in the positive.
While those retail sales numbers may have boosted optimism about the U.S. economy (the Atlanta Fed’s second-quarter GDPNow forecast rose to 2.5% from 2.0%), global oil prices did not, which fell to a one-month low on concerns about weak demand from China.
Japanese markets started to move again after a holiday on Monday as bond yields fell to their lowest in nearly three weeks, with the 10-year government bond yield dropping to 1.02% on Tuesday, likely helping the yen slip back below 158 to the dollar.
Tokyo may have spent another 2.14 trillion yen ($13.5 billion) on foreign exchange market intervention aimed at strengthening the yen on Friday, according to data released by the Bank of Japan on Tuesday, following an estimated 3.37 trillion to 3.57 trillion yen spent on Thursday’s intervention.
According to Pierre-Olivier Golantius, chief economist at the International Monetary Fund, the Bank of Japan’s biggest challenge is not to maintain the value of the yen, but to maintain price stability and keep inflation within its target.
Gorinchas made the remarks after the IMF lowered its economic growth forecast for Japan, citing temporary disruptions to auto production in the first quarter and weak private investment, but welcomed recent strong wage increases that should boost household incomes.
The IMF’s outlook for China was the exact opposite: it sharply raised its growth forecasts to 5.0% and 4.5% for 2024 and 2025, respectively. But, perhaps unsurprisingly given Monday’s surprisingly weak second-quarter data, Goulincias said risks were tilted heavily to the downside.
It is no wonder that bond yields and the renminbi continue to come under downward pressure, as investors will be hoping that the ruling Communist Party’s Third Plenum will provide concrete signs that further support measures for the economy will be enacted.
Key trends that could give further direction to the market on Wednesday include:
– Indonesia Interest Rate Decision
– New Zealand inflation rate (Q2)
– The 3rd Plenary Session of China
(Reporting by Jamie McGeever)
