A preview of the day ahead in Asian markets.
What goes down must come up.
The same goes for oil, whose rise due to escalating fears over the worsening conflict in the Middle East is casting an increasingly dark shadow over global markets this weekend.
The barrel of Brent jumped more than 5% on Thursday, recording its biggest increase in a year, bringing the gains recorded since the start of the week to more than 8%. If oil holds up on Friday, it will record its biggest weekly rise since January of last year.
It’s true that oil’s rebound is starting from a low and prices are back to where they were only a month ago, but global stocks and investors’ appetite for risk are starting to feel the heat .
The price of oil is still about 10% lower than it was a year ago and has been negative year-on-year since July, a dynamic that has highlighted growing disinflationary pressures around the world.
But it was down almost 30% year-over-year just a few weeks ago. If geopolitical tensions persist and oil continues to rise, investors may need to rethink their inflation outlook.
U.S. Treasury yields are rising and the yield curve is steepening, especially at the long end, suggesting investors are starting to worry about longer-term inflation.
As for Asia, the positive effects of China’s stimulus measures last week appear to be fading in the face of the growing negative effects of oil and risk aversion.
Another notable consequence of escalating geopolitical tensions is the explosion in safe-haven demand for the US dollar. The dollar index hit its highest level in six weeks on Thursday and is on track for its biggest weekly rise since April.
When you combine these two factors – higher Treasury yields and a stronger dollar – the backdrop is not particularly attractive for Asian markets. Especially on a Friday, the day after the MSCI Asia ex-Japan index reached its highest level since January 2022.
The Asian economic calendar on Friday is quite light, with inflation from the Philippines, retail sales from Singapore, services purchasing managers’ index and manufacturing PMI reports from India and Hong Kong, respectively, as main publications.
Global events are likely to set the tone for the market on Friday.
Asian investors could also decide to play the caution card before the publication, Friday morning in Washington, of the report on non-farm payrolls in the United States for the month of September. This report and October data will largely determine the extent of the interest rate cut planned for early November.
The interest rate futures market is currently split evenly between a 25 or 50 basis point decline.
Here are the main developments that could steer Asian markets on Friday:
– Inflation in the Philippines (September)
– Services PMI in India (September)
– Retail sales in Singapore (August)
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