Market Outlook: Treasuries Relief, China Grief
Investors Hopeful as U.S. Bond Selling Eases
Investors were granted a reprieve from the recent U.S. bond selling frenzy on Monday, which should have a positive impact on Asian markets on Tuesday. However, concerns about the sustainability of this calmness are inevitable.
Light Economic Calendar
Today’s regional economic calendar features limited events. Notable highlights include South Korean producer price inflation for September, Japan and Australia’s flash purchasing managers index (PMI) data for October, and a speech by Reserve Bank of Australia governor Michele Bullock. Traders should monitor these releases as they may cause short-term currency fluctuations. Yesterday’s PMI data indicated that manufacturing activity in Japan and Australia contracted, while the services sector experienced growth. However, Japan’s growth rate was the slowest this year.
The Dominance of the U.S. Treasuries Market
The ebb and flow of the U.S. Treasuries market continues to impact the broader market sentiment. On Monday, the 10-year yield briefly surpassed 5.0% but subsequently declined. This 20 basis point slide contributed to the positive performance of U.S. stocks and a weaker dollar. Consequently, Tuesday is expected to be a ‘risk-on’ day across Asia.
Wall Street’s Influence and China’s Capital Outflows
Wall Street, however, experienced a late downward drift, with only the Nasdaq closing in the green. This movement may be attributed to the tech sector’s sensitivity to interest rate fluctuations. Additionally, China continues to face significant capital outflows, with outflows in September reaching $75 billion, the highest monthly figure since 2016. Goldman Sachs analysts predict that the interest rate differential between China and the US will lead to persistent depreciation and outflow pressures in the coming months. This situation, coupled with the decline of blue-chip Chinese stocks, poses a challenge for Asian and emerging market equity indexes.
Focus on Japan’s Yen and Bonds
Japan’s yen and bonds will remain in the spotlight as the yen briefly slipped below 150.00 per dollar, and the 10-year yield reached a fresh decade-high. Speculation surrounding potential changes to the Bank of Japan’s yield curve control policy later this month is driving these movements.
Key Developments on Tuesday
- Japan flash manufacturing PMI (October)
- Australia flash PMI (October)
- South Korea producer price inflation (September)
By Jamie McGeever; Editing by Josie Kao
