A preview of the day ahead in Asian markets.
Investor sentiment in Asia is expected to start the week on a positive note on Monday, supported by last week’s bullish momentum in global stocks, calmer foreign exchange markets, and a general easing of financial conditions.
Key events on the regional calendar include China’s services PMI figures and Indonesia’s first-quarter GDP data, while Chinese President Xi Jinping is in Paris for talks with President Emmanuel Macron and the European Commission president Ursula von der Leyen.
Investors are hoping that the increase in risk appetite following Federal Reserve Chairman Jerome Powell’s relatively dovish guidance on the outlook for U.S. interest rates on Wednesday will continue this week.
Wall Street and the MSCI World Index hit three-week highs on Friday – the S&P 500 had its best day since February 22 – while the MSCI Asia ex-Japan Index climbed to its highest level since February of Last year.
The trough-to-peak increase in Asian stocks over the past two weeks has been a remarkable 8%.
U.S. earnings have, overall, been strong and company forecasts generally optimistic. The Fed appears reluctant to raise rates again and signs of slowing economic data are keeping hopes alive for an interest rate cut this year.
Financial conditions in global and emerging markets eased significantly last week, and are now the softest since March 22, according to Goldman Sachs Financial Conditions Indicators.
Liquidity will be lower than usual on Monday, with London markets closed for holidays. Could the Bank of Japan take advantage of this to intervene in the foreign exchange market?
The dollar plunged nearly 5% against the yen last week following two alleged interventions by Japan, one on Monday and the other on Wednesday.
U.S. futures market data shows hedge funds reduced their historically high yen short positions in the week through last Tuesday. This reduction was likely accelerated by the yen’s surge, and it is not unreasonable to think that some of the scum from the broader bear trade between Asia and the dollar has also dissipated.
Indonesia’s GDP figures on Monday are expected to show the economy grew at an annual rate of 5.00% in the first quarter, according to a Reuters poll, slightly lower than Finance Minister Sri Mulyani Indrawati’s forecast of 5.17% .
But seasonal factors are expected to mean GDP contracted by 0.89% compared to the previous three months.
Last month, Indonesia’s central bank made a surprise interest rate hike to support the rupiah, which had fallen to a four-year low. Bank Indonesia’s 7-day repo rate is now 6.25%, the highest since it became the main policy rate in 2016.
On the political and diplomatic front, Chinese President Xi Jinping is in Europe – his first visit to the continent in five years – and trade is a key focus, with French President Macron expected to urge Xi to reduce trade imbalances.
Here are the main developments that could steer markets on Monday:
– Caixin Services PMI in China
– GDP of Indonesia (Q1)
– Chinese President Xi Jinping visits Europe
