A preview of 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 top releases, including Tokyo Inflation, Japan Unemployment and Industrial Production: Tokyo Inflation, Japan Unemployment and Industrial Production, Industrial Production and retail sales in South Korea, as well as trade and current account figures in Thailand.
Tokyo’s inflation will likely be the most important, as it will provide insight 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 reduce its bond purchases, if only to ease the selling pressure on the yen and bring the currency out of its lows. level for 38 years against the dollar this week. Policymakers have warned that excessive policy tightening could hurt consumer spending and economic growth. But they also continue to express their dissatisfaction with the continued depreciation of the yen.
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 core inflation in Tokyo rose to 2% in June from 1.9% in May. Authorities would likely be OK with that, but so would yen bears, and further selling is sure to sound intervention alarms.
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 results in Asia are mixed. Japan’s Nikkei has massively outperformed, largely thanks to the weak yen, Japanese bond yields have reached multi-year highs, but the specter of deflation has pushed Chinese bond yields to historic lows.
Most currencies are down against the US dollar, but not as much as the yen. The Indonesian rupiah is at a multi-year low, while the Indian rupee is at an all-time low, but has been spared from official intervention. A look at M&A activity in the January-June period on Thursday may be more telling of investor sentiment across the continent. LSEG data shows that 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
