By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
The trading week in Asia starts against an increasingly bullish global environment, fueled by continued strength in US equities, but with more cautious local sentiment due to uncertainty surrounding China’s deep-seated economic problems.
The People’s Bank of China is expected to cut lending rates on Monday, the latest step by Beijing in a series of monetary, fiscal and liquidity support measures to support the imploding real estate sector, revive growth and fight deflation.
PBOC Governor Pan Gongsheng told a financial forum in Beijing on Friday that the LPR will be cut by 20 to 25 basis points on Monday, the official Xinhua news agency quoted Pan as saying.
The PBOC also unveiled new measures on Friday to inject more than $100 billion into the country’s stock market, helping Shanghai’s blue chip stock index rise 3.6%, while MSCI Asia ex-Japan index rose 1.6% for its best day since September 1. 26.
China’s economic “data dump” on Friday was not as bad as many feared it could have been, with third-quarter annual GDP growth slightly above consensus at 4.6%.
But as economist Phil Suttle notes, the past two quarters have been unusually weak, with growth of 2.75% on a seasonally adjusted annualized basis, “the weakest two-quarter growth rate in modern times” aside from the coronavirus-related shutdowns.
No wonder Beijing has taken action.
Equities have reacted positively, but bond yields are falling again. They initially rose on the hope that the support measures, including substantial bond issuance, will revive the economy, but the ten-year yield is back in sight of 2.00%.
The US-China trade wars have returned to the forefront of investors’ attention after Republican presidential candidate Donald Trump said he would impose additional tariffs “of 150% to 200%” on China if China were to “enter Taiwan,” said the Wall. Street Journal reported this on Friday.
Meanwhile, the US juggernaut continues to roll on: economic data is beating expectations, GDP growth remains well above 3%, earnings are strong and Wall Street is hitting new highs.
But perhaps the optimism is exaggerated. Analysts at Raymond James note that short-term options and technical indicators are becoming skewed, suggesting the market is “ripe for a period of consolidation or vulnerable to a near-term pullback.”
Financial conditions are easing around the world as central banks cut rates and stocks rise. On that note, investors in Asia will be keeping a close eye on the dollar, which has recently recovered and is at a three-month high.
Friday’s Morning Bid Asia newsletter incorrectly stated that Malaysia would release GDP data later in the day. The preliminary GDP will be announced on Monday, October 21.
Here are the key developments that could give markets more direction on Monday:
– Decision on the highest interest rates on Chinese loans
– Malaysia GDP (Q3)
– Reserve Bank of Australia Deputy Governor Andrew Hauser speaks
(Reporting by Jamie McGeever)