Jamie McGeever
(Reuters) – The outlook for Asian markets for the day ahead.
Asian markets had their first chance on Monday to react to the impact of Friday’s U.S. jobs report on global markets, with U.S. Treasury yields and the dollar notching their biggest daily gains in two months.
Traders have also lowered expectations for a rate cut from the Federal Reserve – the likelihood of a rate cut before the election is now no more than 50-50, and the possibility of two across-the-board rate cuts this year is no longer on the cards.
That offsets the dovish momentum built earlier last week when the Bank of Canada and the European Central Bank cut interest rates and the dollar and Treasury yields hit two-month lows.
Indeed, before Friday’s reversal, the Nasdaq hit record highs last week and Asian stocks still managed to rise nearly 3%, their fifth weekly gain in the past seven.
But rising U.S. Treasury yields and a stronger dollar don’t bode well for investors’ risk appetite, so Friday’s market moves could put Asian assets on the defensive when Monday opens. Asian investors and traders may have been tempted to reduce their risk exposure ahead of two major monetary policy decisions this week from the Federal Reserve and the Bank of Japan.
Sources familiar with the Bank of Japan’s thinking said policymakers are brainstorming ways to slow the pace of bond purchases and could provide new guidance this week, which would be a critical first step in reducing the nearly $5 trillion balance sheet.
While details have not yet been finalized, the central bank may cut monthly purchases or clarify plans for a slow but steady taper, four sources said, focusing on preventing a sudden spike in yields.
Japan’s trade and current account data for April will be released on Monday, along with final estimates of first-quarter gross domestic product. The Reuters poll showed that the 0.5% quarter-on-quarter contraction would not change, but annualized printing would rise to -1.9 from -2.0% on stronger capital spending.
Malaysia’s industrial production data and Indonesia’s consumer confidence index added color to Monday’s economic calendar.
Meanwhile, in China-related news, U.S. officials expect G7 countries to issue a new stern warning to China’s smaller banks to stop assisting them at a summit in Italy this week, according to two people familiar with the matter. Russia evades Western sanctions.
Media briefings also indicate that Volvo (OTC: ) has begun moving production of Chinese-made electric cars to Belgium in anticipation of an EU crackdown on imported cars subsidized by Beijing.
Türkiye said on Saturday it would impose an additional 40% tariff on cars imported from China.
Here are the key developments Monday that could provide more direction for the market:
– Japan GDP (Q1, final estimate)
– Malaysian Industrial Production (April)
– Indonesian consumer confidence (May)
