By Jamie McGeever
A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.
Asia is set for a cautious open on Wednesday after a jump in oil prices to their highest level this year and resulting spike in bonds yields on Tuesday helped take some of the froth out of local stock markets that had built up recently.
The regional economic data and policy calendar is light, with Australian second quarter GDP growth figures and the latest snapshot of inflation in Taiwan the only major releases on tap.
Australia's economy is expected to have grown at a faster quarter-on-quarter rate of 0.3% than the 0.2% registered in the January-March period, and at a 1.8% annual rate, which would be down from 2.3% in Q1.
These figures come a day after the Reserve Bank of Australia held its key cash rate on hold at 4.10% for a third month and indicated that its tightening cycle could be over, triggering a sharp sell off in the Australian dollar.
The Aussie slumped more than 1% on Tuesday to its lowest this year, one of its steepest declines this year as traders further pared back bets that rates will be raised once more by the end of the year.
The flip side of that was another leg up for the U.S. dollar. There are still three trading days left this week but if the dollar index closes in the green it will mark an eighth weekly rise in a row, matching the longest winning run since December 2014-January 2015.
The greenback has drawn much of its recent strength from the rise in Treasury yields and Tuesday was no different - the two- and 10-year yields both rose almost 10 basis points, the steepest increases in four and six weeks, respectively.
Oil is back in the spotlight after Russia and Saudi Arabia on Tuesday extended output cuts. Nymex crude rose for an eighth day, its longest winning streak since January, and Brent crude rose for a sixth day, its best run since May last year.
Oil prices have essentially been disinflationary all year, meaning the year-on-year price change has always been negative, sometimes dramatically so. But that is about to flip, perhaps later this week.
With the dollar, bond yields and oil prices all marching higher, it is little wonder investors are drawing in their horns. MSCI's Asia Pacific ex-Japan equity index fell 1% on Tuesday, global stocks posted their biggest decline in two weeks and Wall Street also closed in the red.
Perhaps investors will be more inclined to take some chips off the table rather than bet on further gains in riskier assets. Those with a sense of history will also be aware that September can be a notoriously volatile month.
Here are key developments that could provide more direction to markets on Wednesday:
- Australia GDP (Q2)
- Taiwan inflation (August)
- Bank of Japan's Hajime Takata speaks
(By Jamie McGeever; Editing by Josie Kao)
