by Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets from financial markets columnist Jamie McGeever.
Asian markets are set to open on the defensive on Thursday, with investors anticipating a further slide in Chinese trade activity against a backdrop of rising US bond yields, oil prices hitting new 2023 highs and a massive selloff on Wall Street.
Malaysia’s central bank is expected to hold interest rates at 3.00% for a second meeting, Chinese FX reserves data and Australian trade data are also due, and G20 finance and energy ministers are due at the leaders’ summit later this week. See you in India before
The general market mood is turning sour as September approaches, the latest catalyst being a surprisingly strong reading of US services sector activity and price pressures that have rekindled the talk of a possible Fed rate hike later this year.
Oil hitting new highs during the year is troubling investors. For the first time this year, US crude futures are more expensive than they were 12 months ago, meaning the deflationary impulse has now reversed.
Good news for oil exporters, but not good news for oil importers like Japan, which imports almost all of its energy. The yen is extremely weak, and senior Japanese officials are warning that all options to support the currency are on the table.
Elsewhere in Asian FX markets, China’s yuan fell to a 10-month low of 7.32 per dollar on Wednesday, just short of plumbing depths not recorded since late 2007.
Investors may get further reminders of the currency’s weakness from data on Chinese trade and FX reserves on Thursday.
The sugar trade has been one of the biggest economic red flags this year. Both exports and imports declined, reflecting weak foreign demand for Chinese goods and weak domestic demand.
Economists polled by Reuters expect it to be worse in August – with exports falling 9.2% year-on-year and imports down 9.0% – though not as severe as in recent months.
FX reserves tend not to be big market-movers, but another drop could be seized upon – rightly or wrongly – as evidence of the yuan’s vulnerability and Beijing’s chill on dollar-denominated assets.
Beijing’s nominal FX reserves have increased this year, even as the nominal value of Beijing’s holding of US Treasuries fell to a 14-year low. This suggests that China is diversifying into either currencies, dollar-denominated assets, or both.
Reserves are estimated to have declined to $3.187 trillion in August from $3.204 trillion in July. It stood at $3.128 trillion at the end of last year.
Here are the key developments that could provide more direction to the market on Thursday:
– China Trade (August)
– Malaysia Interest Rate Decision
– Australia Business (August)
(By Jamie McGeever; Editing by Josie Cao)
