A preview of the day ahead in Asian markets.
A classic case of “good news is bad news” out of the United States on Thursday appears to weigh on Asian markets on Friday, as the long-awaited first U.S. interest rate cut is pushed back until later.
A quarter-point rate cut from the Fed is now only expected in December, after the presidential election. It’s hard to believe it now, but at the start of the year, 150 basis points of easing was expected in 2024, starting in March. The prospect of global policy tightening in coming months could be problematic for risk assets, as forecasts of UK rate cuts were tempered and New Zealand’s central bank gave a more optimistic signal this week.
Stocks fell and bond yields rose Thursday after figures showed U.S. business activity accelerated in May to its highest level in more than two years, overshadowing another “win” for the profits of artificial intelligence and chip manufacturing giant Nvidia. This should boost risk appetite, but the US PMI report also showed price pressures rising rapidly. With many stock indexes historically high and volatility historically low, investors are choosing caution over adventure.
After hitting record highs on Monday, U.S. copper prices are on track to fall 5.5% this week, which would be the biggest drop since November 2022.
This is the backdrop to the opening of Asian markets on Friday. If markets close unchanged or lower, the MSCI Asia ex-Japan index will post its first weekly decline in five years, China’s CSI300 index its first decline in six weeks and Hong Kong’s Hang Seng index its sharpest weekly loss since January.
Japanese inflation tops Friday’s economic data calendar, which also includes inflation in Malaysia, trade in New Zealand and industrial production in Singapore.
Japan’s annual core inflation is expected to fall to 2.2% in April from 2.6%, closer to the Bank of Japan’s 2% target and perhaps enough to give policymakers policy makers some room to maneuver after yields on Japanese government bonds rose this week to their highest level in more than a decade.
In Italy, G7 finance chiefs begin a two-day meeting on Friday, with the trade standoff between China and the West at the top of the agenda.
Finally, South Korea hosts a two-day trilateral summit with China and Japan on Sunday. From a markets perspective, it will be interesting to see if discussions focus on trade competitiveness, AI and the chip sector, as well as exchange rates, after Japan and South Korea signed the last month a rare joint declaration with the United States to “consult closely” on currencies.
Here are the main developments that could guide the markets on Friday:
– Japanese CPI (April)
– New Zealand trade (April)
– G7 finance chiefs meet in Italy
