By Jamie McGeever
(Reuters) – A preview of the day ahead in Asian markets.
Broadly speaking, the global backdrop for Asian markets remains favorable, with investors confident that the Fed will soon cut US interest rates by controlling the dollar, bond yields and volatility, and boosting risk assets .
But there is one cloud that shows no signs of disappearing: China. On the contrary, it is getting darker and darker.
Beijing’s economic “data dump” on Friday showed China’s recovery faltering: investment growth slowed, retail sales grew at the slowest pace since late 2022 and new home prices fell at the fastest rate in nine years.
The most alarming thing is that the crisis in the real estate sector is getting worse. Certainly, Chinese and Hong Kong stocks jumped on Friday after Beijing unveiled a series of historic measures to stabilize the sector, but will this rebound last?
Even though the central bank said it would facilitate an additional 1 trillion yuan in financing and relax mortgage rules, and local governments would purchase some apartments, the deep-rooted fundamentals of huge oversupply and demand weak remain.
Renewed concerns about Chinese growth raise the question of how Beijing will finance its long-term fiscal support measures. China has more than $3 trillion in foreign exchange reserves. Is now the time for China to dip into this rainy day fund to prevent the collapse of the real estate sector from bringing down the economy as a whole?
This is unlikely, and Beijing may well not prioritize increasing exports as the preferred path to recovery. But that would not be welcomed by the United States, which last week imposed additional tariffs on $18 billion of imports from China.
These tariffs and the hardening battle lines between the West and China over trade are sure to feature prominently at next week’s G7 finance officials meeting in Italy. US Treasury Secretary Janet Yellen will attend, but it is unclear whether Fed Chairman Jerome Powell will attend, after testing positive for COVID-19.
That said, financial markets are currently experiencing a period of remarkable calm. Global currency volatility is at a five-week low, U.S. Treasury market volatility is at a six-week low and the VIX index fell below 12 on Friday for the first time this year.
This low-volatility environment is helping propel U.S., European and other stock markets to unprecedented highs.
Monday’s Asian economic calendar offers investors a range of interesting indicators, including: Thailand’s GDP, current account and trade data from Indonesia, Malaysia and Taiwan, and unemployment from Hong Kong .
China’s central bank is widely expected to once again keep its prime rates on one- and five-year loans at 3.45% and 3.95%, respectively, after leaving medium-term loans unchanged on Wednesday.
However, pressure is mounting for a reduction soon.
Here are the key developments that could provide better direction for markets on Monday:
– GDP of Thailand (Q1)
– Taiwan exports (April)
– Japan tertiary index (March)
(Reporting by Jamie McGeever; editing by Lisa Shumaker)
