By Jamie McGeever
A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.
After Monday's surprising resilience on Wall Street, world markets' reversion to type on Tuesday should set the tone for Asia on Wednesday - weakness in stocks, a buoyant dollar, elevated bond yields and souring investor sentiment.
The regional economic data calendar includes the release of Australian and Japanese purchasing managers index reports that will give the first glimpses into how these economies performed in August, and consumer price inflation from Singapore.
There is no obvious catalyst on Wednesday from economic indicators, central bank decisions or policymaker commentary to shake Asian markets out of their recent funk. Until there is, rebounds like Tuesday's are likely to be the exception rather than the rule.
China's economic and financial travails remain top of mind for investors, so any sign of further incoming fiscal or monetary stimulus from Beijing will be well received.
Chinese President Xi Jinping, in South Africa for the summit of BRICS nations' leaders, said on Tuesday that China's economy was resilient and that the fundamentals for its long-term growth remained unchanged.
Platitudes aside, speculation persists that the central bank could be forced to take bolder action to support the yuan, perhaps by selling some of its large stash of U.S. Treasuries. The same goes for Japanese authorities and the yen.
That is not something Beijing or Tokyo would do lightly, but the higher U.S. bond yields go, the more persistent the selling pressure on their respective currencies becomes. Earlier on Tuesday the 10-year U.S. Treasury yield touched 4.366%, its highest level since November 2007.
Yet FX markets are calm, perhaps too calm.
Implied yen volatility is relatively low in the yuan, and low across currency markets more broadly. U.S. bond market volatility may be at a six-week high, but is in the middle of its range over the past 18 months.
Meanwhile, embattled Chinese property developer Country Garden is slated to release its latest results on Wednesday. China's largest developer has liabilities approaching $200 billion, its shares have lost almost all their value in the last couple of years and they will soon be removed from Hong Kong's benchmark Hang Seng index.
But investors will still be keen to see just how deep in the mire the company is. China's real estate sector is the largest asset class in the world, worth around $62 trillion, and the systemic risks to China's economy and financial system are huge.
U.S.-Sino relations are also back under the spotlight after Washington on Tuesday criticized China for reducing the transparency of its reporting on basic economic data in recent months and for cracking down on firms in China that had been providing such data, calling its behavior irresponsible.
But if that was the stick, the U.S. government also offered a carrot on Tuesday, confirming that Commerce Secretary Gina Raimondo will travel to China next week for meetings with senior Chinese government officials and U.S. business leaders.
Here are key developments that could provide more direction to markets on Wednesday:
- BRICS leaders summit in Johannesburg
- Japan flash PMIs (August)
- Australia flash PMIs (August)
(By Jamie McGeever; Editing by Josie Kao)
