Written by Jamie McGeever
(Reuters) – Future outlook for the Asian market.
Asian markets are expected to start on the defensive on Monday, with rising tensions in the Middle East driving strong demand for safe-haven assets such as the dollar, gold and US Treasuries at the expense of stocks and local currencies.
Investor sentiment has already turned negative after Friday's stock market slump due to U.S. bank profits, with JPMorgan shares posting their steepest decline in nearly four years and global stock declines being the first in six months. It became large.
Asian stock exchanges are likely to follow suit, as U.S. stock futures edged closer on Monday, signaling further sharp declines. Oil prices, which hit a six-month high on Friday, are likely to rise further on Monday.
In such a heated environment, regional economic indicators and events are likely to take a backseat. Monday's calendar is fairly light, with only Indian trade and wholesale price inflation data and Japanese machinery orders released.
China's first-quarter GDP on Tuesday and Japan's consumer price inflation rate on Friday are the two Asian economic indicators most likely to move local markets this week.
But at least on Monday, investors will focus on mitigating risks and playing it safe, and there could be a big move in the Japanese yen in that regard.
The yen has traditionally been seen as a “safe haven” asset that performs well in times of heightened risk aversion, driven by large repatriation flows from Japanese investors and short covering by currency traders who use the yen to fund carry trades. It is considered.
And there is a large short position to cover. The yen is below 153.00 yen to the dollar, the lowest in 34 years, and hedge funds' net short position in the yen is the largest in 17 years, according to the latest U.S. futures market data.
To the surprise of many, the Japanese government was not prepared to respond to sharp fluctuations in the currency, despite near-daily warnings from officials that “excessive fluctuations are undesirable.” Despite being able to do so, they have not yet intervened to stop the corruption.
Perhaps the reason the Japanese government has not intervened yet is that the depreciation of the yen is completely justified on “fundamental” grounds – the US has higher growth and inflation rates than Japan, That's because its yields and implied interest rates are rising faster than their Japanese counterparts.
However, a strong dollar and the recent spike in U.S. bond yields could pose potentially significant problems for Asia. These represent tighter financial conditions, making dollar-denominated debt more expensive to service.
A sharp drop in U.S. Treasury yields is unlikely to bring much comfort as investors scramble to reduce risk in their portfolios due to escalating geopolitical tensions.
Here are the key trends that could give further direction to the market on Monday:
– India Trade (March)
– India wholesale price inflation (March)
・Domestic machinery orders (February)
(Written by Jamie McGeever; Edited by Diane Craft)
