2023-10-22 21:52:05
Financial markets columnist Jamie McGeever provides an update on Asian markets for the day ahead.
The big question in global financial markets this week – and Asian markets in particular, given the absence of regional economic indicators or leading policy decisions – is whether the fall in bond yields US Treasury will ease or not.
South Korea’s third-quarter gross domestic product data and consumer price inflation reports from Australia, Singapore and Tokyo are the main indicators this week, and the rapid indexes of purchasing managers from Japan and Australia will be released on Monday.
These numbers may have a brief impact on their respective currencies, but are unlikely to influence overall market sentiment. It is the American bond market which will be decisive, and the evolution of prices on Monday might be informative.
The ICE BofA Treasuries Index fell 1.4% last week, its biggest decline since May, and is at an eight-year low. The TLT Treasuries ETF has lost a fifth of its value since mid-July.
Covering short positions on Friday, as the weekend approached and the risk linked to events in the Middle East, helped stop the fall, at least momentarily. However, perhaps worryingly, Friday’s bond market relief did not ease pressure elsewhere – Wall Street’s three major indexes still closed down between 0.9% and 1.5%.
The S&P 500 lost 2.4% last week, one of the biggest declines of the year, and the VIX index of U.S. stock market volatility hit its highest level since March on Friday.
It’s not a positive backdrop for Asian markets to open on Monday, although braver investors may be bargain hunting – the MSCI Asia ex-Japan index fell to its lowest on Friday level for almost a year and has lost 12% since the beginning of August.
Meanwhile, the sell-off in stock and bond markets has tightened financial conditions significantly. According to Goldman Sachs, financial conditions in emerging markets and globally have been at their tightest in almost a year.
The situation is even worse in China: financial conditions in the world’s second-largest economy have never been so tight since the launch of Goldman Sachs’ China index in 2006.
China’s central bank governor Pan Gongsheng said Saturday the central bank will make its policy more “precise and forceful”, guide financial institutions to reduce real lending rates and lower financing costs for businesses and individuals.
His comments are important because they are the first he has made on his policy since the publication, earlier this month, of stronger-than-expected economic data for the third quarter.
In terms of currencies, the yen and yuan open the week under heavy selling pressure and at critically important levels. Operators will once once more be attentive to interventions by the Bank of Japan.
In addition, Japanese and Australian PMI data for the month of October are published on Monday. September reports showed that manufacturing activity in both countries contracted and service sector activity increased, although growth in Japan was the slowest of the year.
Here are the main developments that might steer markets on Monday:
– Japan flash manufacturing PMI (October)
– Australia flash PMI (October)
– Inflation in Singapore (September)
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