A preview of the day ahead in Asian markets.
China’s monthly ‘data deluge’ kicks off the global trading week on Monday, with a series of leading indicators likely to give investors a measure of the scale of the world’s second-largest economy’s woes ahead momentum.
Last week, producer and consumer prices confirmed that the threat of deflation still looms over China. Retail sales, business investment, industrial production and house prices will provide a clearer picture of economic activity on Monday.
China’s central bank is expected to leave its benchmark rate unchanged when it rolls over medium-term loans maturing on Monday, with deteriorating interest margins and a weakening currency preventing authorities from easing policy.
According to a Reuters poll of 31 market observers, 30 of them expect the one-year medium-term loan rate to be kept at 2.50%. The only exception provides for a marginal reduction of 5 basis points.
The move comes amid a generally upbeat global market, where hopes of a “soft landing” in the United States, Fed easing, moderate volatility and continued optimism in the tech sector have driven Wall Street and global stocks to record highs.
Disinflation in the United States appears to be spreading to consumer and producer prices, and the impact on market rates is clear – the 10-year Treasury yield hit its lowest level in two months on Friday and half, below 4.20%, and rate operators fully anticipate two cuts of a quarter point this year.
This is a dovish stance compared to the Fed’s revised projections that call for a reduction this year, a position that Minneapolis Fed President Neel Kashkari reiterated on Sunday.
Lower US yields could benefit Asian and emerging markets, but a strengthening dollar could counter this trend. The dollar closed last week at a six-week high, and CFTC positioning data showed Friday that funds increased their long dollar positions for the first time in seven weeks.
The US currency begins the week ahead, particularly against the yen, after the Bank of Japan’s caution on Friday over raising interest rates and shrinking its balance sheet led to a decline in the yen and Japanese bond yields.
This could support Japanese stocks on Monday.
Chinese stocks, on the other hand, remain under pressure. With the yuan hitting its lowest level in seven months on Friday, stocks hit their lowest level in almost two months.
Beijing appears to be getting nervous. China’s financial market regulator said on Sunday it will step up crackdowns on short-selling activities and strengthen monitoring of illegal stock reductions by major shareholders of listed companies.
In South Korea, a senior presidential official said over the weekend that price stabilization created the conditions for the central bank to cut interest rates.
On the corporate front, Hyundai Motor India on Saturday applied for permission to list on the Mumbai Stock Exchange in what could be India’s biggest-ever IPO.
Here are the main developments that could move the markets on Monday:
– The “dumping” of Chinese data (May)
– Machine orders in Japan (April)
– South Korea Trade (May, revised)
