Keep an eye on China profit trends and keep an eye on the yen

Jamie McGeever

May 27th – Future outlook for Asian markets.

Volumes and trading activity across Asia on Monday will be the slowest this year due to public holidays in the U.S. and U.K., but markets are open and there is no shortage of stocks for investors to consider. On the economic calendar, China’s April industrial profits and Hong Kong’s trade data will be released, while South Korea will host a trilateral meeting with China and Japan in Seoul. Yen traders may be wary of intervention as the world’s two biggest FX trading centers, London and New York, are both closed. Japan’s two most recent apparent starts to buy the yen have both occurred during periods of extremely low liquidity, including one on May 1 when many markets were closed.

The dollar has risen to 157.00 yen, and the latest Commodity Futures Trading Commission figures show that speculators are now increasing their short positions in the yen again after reducing them for three weeks.

Will Tokyo try to surprise the markets again?

Trading volume in Asian markets was light on Monday, but the global investment climate remains positive. Bond yields are rising and central banks are becoming increasingly hawkish, but markets remain buoyant.

Primarily, what’s driving this is what’s happening in the U.S.: strong earnings, solid growth, and very subdued volatility. In fact, it’s low volatility that’s driving the bullish momentum globally. Of course, the investment picture in China is less shining and, perhaps not coincidentally, tensions between China and Taiwan are rising.

Downward pressure on the yuan exchange rate appears to be building again. The yuan spot rate just recorded its biggest weekly drop against the dollar since mid-March, and the People’s Bank of China’s daily dollar/yuan peg on Friday rose above 7.1100 for the first time since January.

Foreign direct investment into China fell about 28 percent in the first four months of the year from a year earlier, and Goldman Sachs analysts estimate that foreign currency outflows accelerated to $86 billion in April from $39 billion in March.

While many benchmark stock indexes around the world have hit new highs recently, and Hong Kong’s Hang Seng Index has recovered by around 20%, the situation for Chinese stocks is much tougher.

China’s economic surprise index has also been inching lower in recent weeks, dropping to its lowest level since February 8 on Friday. This all comes despite Beijing taking new measures to address the crisis in its real estate sector. It’s a quiet week for China’s economic data, but April industrial profits, due for release on Monday, will be the big one for investors.

Corporate profits fell in March, complementing a range of economic indicators including retail sales and industrial production that showed weakness in domestic demand.

Here are some key developments that could give further direction to the market on Monday:

– Trilateral Meeting between Korea, Japan and China

– China’s Industrial Interests

– Hong Kong Trade

This article has been generated from an automated news agency feed without any modifications to the text.