A look at the day ahead in Asian markets.
A cautious mood hangs over Asian markets on Friday, the last trading day of the quarter and the halfway point of the year, with investors likely to keep risk exposure to a minimum ahead of US inflation data later in the day and heading into the weekend. This caution could be reinforced by headlines from the US presidential debate between Joe Biden and Donald Trump later on Thursday, particularly on trade protectionism and tariffs on imports from China.
Friday’s Asian economic calendar is packed with major releases, including Tokyo inflation, Japan unemployment and industrial production: Tokyo inflation, Japan unemployment and industrial production, South Korea industrial production and retail sales, and Thailand trade and current account figures.
Tokyo inflation will likely be the most important, as it will provide a glimpse into price pressures in Japan and what the Bank of Japan might do at its July 30-31 policy meeting. Pressure is mounting on the Bank of Japan to raise rates again or scale back its bond purchases, if only to ease selling pressure on the yen and lift the currency off its 38-year low against the dollar this week. Policymakers have warned that tightening policy too much could hurt consumer spending and economic growth. But they also continue to voice discontent over the yen’s relentless depreciation.
They can’t have it both ways. Japanese authorities have yet to step in to support the yen this time around, but traders will be watching closely for any action, particularly in the less liquid parts of the global trading day.
Economists polled by Reuters estimate that core inflation in Tokyo rose to 2% in June from 1.9% in May. The authorities would probably accommodate it, but so would the yen bears, and further selling is sure to sound the alarm for intervention.
The Chinese currency, meanwhile, is also entering the middle of the year on the defensive, hitting its lowest level of the year on Thursday. Chinese stocks are in the same situation, performing significantly worse than their regional and global peers.
The mid-year picture in Asia is mixed. Japan’s Nikkei has outperformed massively, thanks in large part to the weak yen, Japanese bond yields have hit multi-year highs, but the specter of deflation has pushed Chinese bond yields to record lows.
Most currencies are down against the US dollar, but not as much as the yen. The Indonesian rupiah is at its lowest level in several years, while the Indian rupee is at an all-time low, but has been spared from official interventions. A snapshot of merger and acquisition activity in the January-June period on Thursday could be more revealing of investor sentiment across the continent. LSEG data shows the value of announced deals fell 25% year-on-year to $317.5 billion, and M&A fees fell to $1.5 billion.
Both figures are the lowest in 11 years.
Here are the main developments that could guide the markets on Friday:
– Inflation in Tokyo (June)
– Unemployment in Japan (May) – American presidential debate
