By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
Overall, the global outlook for Asian markets is still bright, with investors confident that the Fed will soon cut US interest rates, keeping the dollar, bond yields and volatility in check, and boosting risk assets.
But there is one cloud that shows no signs of disappearing: China. In fact, it’s getting darker.
Beijing’s economic “data dump” on Friday showed that China’s recovery is faltering – investment growth slowed, retail sales expanded at the slowest pace since late 2022 and house prices new ones fell at the fastest rate in nine years.
The most alarming thing is that the crisis in the real estate sector is deepening. It’s true that Chinese and Hong Kong stocks rose on Friday after Beijing unveiled a series of historic measures to stabilize the sector, but will the recovery last?
Although the central bank has said it is facilitating 1 trillion yuan in extra financing and easing mortgage rules, and local governments will buy some apartments, deep-rooted fundamentals of massive oversupply and weak demand remain.
Renewed concern about China’s growth raises the question of how Beijing will finance its long-term fiscal support measures. China holds more than 3 billion dollars in foreign exchange reserves. Is now the time for China to tap that rainy day fund to prevent the housing crisis from bringing down the broader economy?
It’s unlikely, and Beijing may well opt for increased exports as its preferred path to recovery. But that would not be well received by the United States, which last week imposed additional tariffs on $18 billion in imports from China.
These tariffs and the increasingly strict battle lines between the West and China on trade will certainly feature prominently at next week’s meeting of G7 finance officials in Italy. US Treasury Secretary Janet Yellen will attend, but it is unclear whether Fed Chairman Jerome Powell will travel, after testing positive for COVID-19.
That said, financial markets are enjoying a period of remarkable calm at the moment. Global currency volatility is at a five-week low, US Treasury market volatility is at a six-week low and the VIX index on Friday fell below 12 for the first time this year.
This low-volatility environment is helping to lift stock markets in the US, Europe and other countries to all-time highs.
Monday’s Asian economic calendar offers a decent portion of indicators for investors to delve into, including: GDP from Thailand, current account and trade data from Indonesia, Malaysia and Taiwan, and unemployment from Hong Kong.
China’s central bank is expected to again maintain its preferential rates on one- and five-year loans at 3.45% and 3.95%, respectively, after leaving its medium-term loans unchanged on Wednesday.
However, pressure is mounting for a cut soon.
Here are key developments that could provide further guidance to markets on Monday:
– Thailand’s GDP (1st quarter)
– Taiwanese exports (April)
– Japan tertiary index (March)
(Reporting by Jamie McGeever; Editing by Lisa Shumaker)
