Jamie McGeever, a financial markets columnist, presents the outlook for Asian markets for the upcoming day. Asian markets are expected to open higher on Tuesday, following a peculiar day in global markets on Monday, which saw almost all asset classes rise despite geopolitical tensions and uncertainty caused by violence in Israel and Gaza.
Gold, a safe haven, surged 1.6% to its best day in five months, and oil recorded its biggest gain in six months, while the dollar gave up all its initial gains and Wall Street recovered from a 1% loss to comfortably finish in the green.
The rebound in risk sentiment is largely due to comments from two Fed officials, who stated that the recent rise in long-term bond yields and tightening financial conditions mean the Fed may have finished raising interest rates.
The President of the Dallas Fed, Lori Logan, stated that “it may be less necessary to raise the federal funds rate,” and Fed Vice President Philip Jefferson alluded to the need for the central bank to “proceed with caution” in any further rate hikes.
US implied rates fell across the curve, the dollar weakened, and risk assets increased. The US bond market was closed on Monday for Columbus Day, but futures contracts were traded, and the 10-year Treasury futures contract recorded its biggest gain since March.
The decline in US yields, implied rates, and the dollar exchange rate provides a much more favorable set of conditions for Asian and emerging markets than those initially observed on Monday following events in Israel and Gaza over the weekend.
The MSCI Asia ex-Japan index even managed to register a slight gain and has now risen for three consecutive days, its best performance in over a month.
The economic data and events calendar for the Asia-Pacific region is fairly light on Tuesday, with the latest Japanese current account figures, Australian business confidence indices, and the Philippines’ trade balance data being the main highlights.
The annual meetings of the IMF and World Bank in Morocco start on Tuesday, with the presence of Janet Yellen, US Treasury Secretary, Christine Lagarde, President of the European Central Bank, and many other top international policymakers.
Markets will be sensitive to whether Raphael Bostic, Christopher Waller, Neel Kashkari, and Mary Daly stick to the line given by their colleagues on Monday.
A more hawkish tone could dampen the market’s enthusiasm sparked by Lorie Logan and Philip Jefferson.
The troubled Chinese real estate sector is back in the spotlight. Country Garden, the country’s largest private lender, could announce a plan to restructure its offshore debt soon, local media reported on Monday, as it faces an impending debt deadline.
Here are the key developments that could shape the markets on Tuesday:
– IMF and World Bank meetings in Marrakech, Morocco
– Japan’s current account (August)
– Bostic, Kashkari, Waller, and Daly from the Fed speak
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