Jul 5 (Reuters) – A look at the day ahead in Asian markets by financial markets columnist Jamie McGeever.
The key Asian economic indicator of a pretty full calendar on Wednesday, and the biggest potential market mover, will be the China Services Purchase Managers Index report for June, which comes amid the latest rising tensions between the US and China.
Traders will also need to digest the PMIs for Japanese, Australian and Indian services, as well as the latest inflation data out of Thailand and the Philippines, and can expect trading volume to return to more normal levels after the July 4 holiday in the US.
Currency traders are on high alert for authorities in Beijing and Tokyo to intervene to slow the decline of the yuan and yen respectively, while Asian stocks are set to rise ex-Japan for a fourth day in a row – an unprecedented winning streak for two months.
However, the main focus will be on China. The economy has sputtered this year, prompting downward revisions to GDP growth estimates, widespread underperformance of Chinese assets and growing calls for fiscal and monetary stimulus.
China’s index of economic surprises shows just how much recent data has underestimated analysts’ expectations – it is highly negative, falling rapidly and at its lowest level in six months.
However, activity in the services sector has held up fairly well, growing every month this year, according to PMI data. A solid number could allay investors’ concerns.
The yuan rose to a one-week high against the dollar on Tuesday as the central bank pegged the currency higher and major state-owned banks cut their dollar deposit rates again as authorities ramped up efforts to halt the yuan’s decline.
The political backdrop for this is the latest flare-up of tensions between the US and China.
China on Monday abruptly announced a series of restrictions starting August 1 on exports of some metals commonly used in semiconductors and electric vehicles, sparking a trade war and potentially causing more disruption to global supply chains.
This comes ahead of a planned visit to Beijing by US Treasury Secretary Janet Yellen this week.
Elsewhere in local currency markets, the Australian dollar rose for a fourth day on Tuesday after the Reserve Bank of Australia left its benchmark cash rate at 4.10%.
This was the second time in the RBA’s tightening cycle that interest rates were held after the April shock break, but it was much less of a surprise – money markets had only projected a one-in-three chance of a rise to 4.35%.
Aussie bulls backed off on the RBA’s warning that further tightening could be needed to curb inflation, and overnight swaps still point to nearly 50 basis points of further tightening this year.
Here are the key developments that could give more direction to the markets on Wednesday:
– China, Japan, India, Australia Services PMIs (June)
– Philippines CPI Inflation (June)
– Thailand CPI inflation (June)
By Jamie McGeever; Edited by Alistair Bell
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.