Jamie McGeever
(Reuters) – Future outlook for Asian markets.
Investors will no doubt be relieved that disinflationary pressures appear to be spreading around the world, but there were some warnings on Tuesday not to get complacent and will need to keep these in mind heading into Wednesday.
The Australian central bank struck a more hawkish tone in a policy statement, some Federal Reserve officials expressed similar concern about inflation, and global oil prices extended their recent rise to their highest level in seven weeks.
But that didn’t offset the bullish mood across global markets — Asian stocks posted solid gains, Nvidia became the world’s most valuable public company, and the S&P 500 and Nasdaq hit new highs — but it was a reminder that markets don’t move one way.
The slowdown was partly due to disappointing U.S. retail sales figures that suggested growth in the world’s largest economy was slowing. The dollar and Wall Street were little changed and Treasury yields fell.
Asian markets may find it hard to gauge direction on Wednesday, with trade figures from Japan and Indonesia, current account data from New Zealand and Japan’s Tankan economic survey highlighting the regional economic calendar.
The New Zealand dollar may take its cue from comments by Reserve Bank of New Zealand chief economist Paul Conway, who is due to deliver a speech on inflation.
Swaps markets are pricing in a 35 basis point easing by the RBNZ this year and a further 90-100 basis points next year, well above the cuts expected from the Reserve Bank of Australia, which is only expected to cut rates by 50 basis points by the end of next year.
The Australian dollar was one of the best performing G10 currencies on Tuesday after the Reserve Bank of Australia kept interest rates unchanged at 4.35% as expected but stressed the need for caution over inflation.
Japan’s yen has returned to near the “intervention zone” of 158.00 to 160.00 yen to the dollar. Tokyo has intervened twice recently to prevent the yen from weakening further.
The Bank of Japan will be more wary than others of the impact on inflation from a weakening exchange rate and falling oil prices, which have risen more than 10 percent in the past two weeks.
Meanwhile, Japanese financial institution The Norinchukin Bank plans to sell more than $63 billion of its holdings of U.S. and European government bonds in the year to March 2025, the Nikkei newspaper reported.
The Nikkei newspaper quoted Norinchukin’s CEO as saying the bank was doing this as part of efforts to “radically change its portfolio management.”
It will be interesting to see what effect, if any, this has on the bonds being sold and the yen. Japan is the largest overseas holder of U.S. Treasuries and the largest creditor nation in the world. Repatriating some of its holdings could move global markets.
Key developments that could give further direction to the market on Wednesday include:
– Japan Trade (May)
– Japan Tankan Survey (June)
– RBNZ’s Conway speaks
(Reporting by Jamie McGeever and Josie Kao Editing)