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Asian market outlook.
Asian investors hope the Tuesday recovery in global sentiment and risk assets continues into Wednesday, but the dollar and U.S. government yields may dampen optimism.
After falling 12% in their second greatest loss on record, Japanese equities rose 10% in their third highest rise on record on ‘Turnaround Tuesday’.
In some senses, daily swings of that magnitude based on little new or substantial market news are red signs. They’re typical of longer, more turbulent downturns, so investors are cautious.
However, any break is wonderful. Wall Street and MSCI’s emerging, Asian, and world market indices all climbed more than 1% on Tuesday as implied yen volatility lessened.
The Atlanta Fed’s GDP Now growth tracker estimate for third-quarter GDP growth was lifted to 2.9% from 2.6%, easing concerns about a U.S. recession.
No wonder U.S. bond yields and the dollar surged. Emerging markets rarely benefit from that double dynamic, but if it’s part of a market rebound with volatility moderating, investors may be more forgiving.
The sharp drop in U.S. yields in recent weeks has more than compensated for the stock price drop for emerging market participants. So much so that Goldman Sachs says emerging market financial conditions are the loosest since January.
On Wednesday, Asia will see July Chinese trade numbers, FX reserves from China, Japan, and Hong Kong, and results from DBS and SoftBank Group.
Given rising U.S. trade and tariff tensions, China’s trade data will be scrutinized. Export growth is rising, which could help the world’s second-largest economy overcome a housing sector slump, sluggish consumer demand, and deflation.
Any dollar enthusiast will watch Beijing, Tokyo, and Hong Kong’s FX reserves updates, even if they rarely affect financial markets.
Reserves total almost $5 trillion, or 40% of the world’s. After China, Japan is the largest overseas holder of U.S. Treasury securities, with $1.13 trillion.
On Wednesday, Reserve Bank of Australia associate governor Sarah Hunter, Bank of Japan deputy governor Uchida Shinichi, and Bank of Thailand governor Sethaput Suthiwartnarueput will talk.
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