19 January (Reuters) – A look at the day ahead at Asian markets from Jamie McGeever.
No fireworks from the Bank of Japan, but plenty of damp squibs for investors to ponder as a series of gloomy US economic indicators pour cold water on the ‘soft landing’ scenario that has been gaining momentum of late.
Policy decisions from Indonesia and Malaysia – consensus forecasts point to a 25 basis point increase from both – are the main events in Asia on Thursday, but market sentiment on Wednesday was gloomy.
Retail sales, industrial production and producer price inflation on Wednesday all pointed to a slowdown in the world’s largest economy in December. This follows recent data showing the level of recession in manufacturing and services activity.
Finally, bad news can be bad news for risky assets. Bond yields fell to multi-month lows on Wednesday, but instead of moving higher on expectations, the Fed will slow policy tightening, this time Wall Street sank into the red.
Wall Street and world stocks had their worst day in two weeks. Remarkably, the Nasdaq posted a seven-day winning streak – its best run since November 2021.
A series of yield curves in the United States and elsewhere show that investors are clearly anticipating an economic slowdown, disinflation or outright recession. The inversion of the 3-month/10-year yield curve in the US is particularly staggering.
It’s a scenario at odds with that of a global recovery led by China’s zero-COVID emergence, Europe avoiding recession thanks to unexpectedly mild weather and a strong labor market giving the US economy a soft landing.
Gita Gopinath, deputy director of the International Monetary Fund, is certainly bullish on China, telling Reuters on Wednesday that she expects a sharp recovery in economic growth from the second quarter. Fourth quarter data from China was much stronger than feared.
In addition, the surprising no show from the BOJ on Wednesday – investors had expected a more aggressive decision – should boost investor sentiment, at least until the next policy meeting.
But the tone in Asian markets on Thursday is likely to be bearish given the course of global markets on Wednesday.
Three key developments that could give markets more direction on Thursday:
– Australia Unemployment (December)
– Indonesia interest rate decision (forecast +25 basis points)
– Interest rate decision Malaysia (forecast +25 basis points)
Reporting by Jamie McGeever in Orlando, Florida; Edited by Josie Kao
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