Written by Jamie McGeever
(Reuters) – Future outlook for the Asian market.
Broadly speaking, the global backdrop surrounding Asian markets remains positive, with investors confident that the Fed will soon cut U.S. interest rates, reining in the dollar, bond yields and volatility, and boosting risk assets.
However, China shows no signs of clouds clearing. If anything, it’s getting darker.
An economic “data dump” released from Beijing on Friday showed China’s recovery has been patchy. Investment growth slowed, retail sales expanded at the slowest pace since late 2022 and new home prices fell at the fastest pace in nine years.
Most worryingly, the real estate sector is becoming increasingly insolvent. Indeed, Chinese and Hong Kong stocks soared on Friday after the Chinese government announced a series of historic measures to stabilize the sector, but will this rally continue?
Despite the People’s Bank of China promoting 1 trillion yuan in additional financing, relaxing mortgage regulations, and announcing that local governments will purchase some apartments, deep-seated fundamentals of huge oversupply and weak demand persist. still remains.
Concerns about China’s growth have been reignited, raising questions about how the Chinese government will finance its fiscal support measures in the long term. China holds over $3 trillion in foreign exchange reserves. Is it time for China to put money into a rainy day fund to prevent the collapse of its real estate sector from hurting the entire economy?
That is unlikely, and it is entirely possible that the Chinese government will choose to expand exports as the preferred route to recovery. But the United States, which imposed additional tariffs on $18 billion of Chinese imports last week, will not welcome this.
These tariffs and the tightening of trade lines between the West and China are sure to feature prominently at the G7 finance officials’ meeting in Italy next week. U.S. Treasury Secretary Janet Yellen is scheduled to attend, but it is unclear whether Fed Chair Jerome Powell, who tested positive for the coronavirus, will travel.
That said, financial markets are currently experiencing a period of surprisingly calm. Global currency volatility was the lowest in five weeks, U.S. Treasury market volatility was at its lowest level in six weeks, and the VIX index fell below 12 for the first time this year on Friday.
This low-volatility environment has helped push stock markets in the U.S., Europe, and elsewhere to all-time highs.
Monday’s Asian Economic Calendar includes a number of indicators investors should keep an eye on, including Thailand’s GDP, current account and trade data for Indonesia, Malaysia and Taiwan, and Hong Kong’s unemployment rate.
The People’s Bank of China is widely expected to keep its one-year and five-year loan prime rates on hold again at 3.45% and 3.95%, respectively, after leaving medium-term lending facility loans unchanged on Wednesday.
But pressure is mounting for cuts in the near term.
Here are the key trends that could give further direction to the market on Monday:
– Thailand GDP (1st quarter)
– Taiwan export (April)
・Japan Tertiary Index (March)
(Reporting by Jamie McGeever; Editing by Lisa Shoemaker)
