Jamie McGiver
(Reuters) – A look at the future of Asian markets.
Asia begins a new trading month for global markets on Monday. Manufacturing PMI data from the continent’s largest economy sets the tone locally, with investors still banking on U.S. and other interest rates set to fall soon.
Purchasing Managers’ Index figures will show how factory activity fared in China, Japan, Taiwan, Australia, South Korea and India over the past month, while the latest inflation figures for Indonesia will also be released.
The most important Asian PMI for the market is China’s unofficial Caixin index, which is expected to rise slightly to 51.5 from 51.4.
This will be welcome relief following disappointing official PMI figures on Friday that showed factory activity contracting again and raising doubts about China’s economic recovery.
Economists at Barclays expect growth in the second quarter to be effectively zero and Citi’s Economic Surprise Index for China will turn negative for the first time in nearly four months.
Japan’s economic indicators late last week sent mixed signals. Surprisingly strong retail sales mean consumers are in good health, but that’s not to say that’s not the case for the industrial sector, as production has been much weaker than expected.
Global economic signals may also start to deteriorate. Local U.S. business activity data on Friday was much weaker than expected, supporting expectations that the Federal Reserve would cut interest rates soon, while the Atlanta Fed’s second-quarter GDP Nowcaster growth tracking indicator fell to 2.7% from 3.5%.
The European Central Bank is expected to cut interest rates this week, and Citi’s Economic Surprise Index across major and emerging economies has all fallen significantly recently.
Asian markets also woke up Monday to news that OPEC+ had agreed to extend most of its larger-than-expected oil production cuts through 2025 to offset tepid demand growth, high interest rates and rising production in the rival United States.
Elsewhere in Asian data, Indonesia’s annual inflation rate is expected to ease slightly in May to 2.9% from 3.0% in April, putting it further within the central bank’s target range of 1.5-3.5%.
Although inflation appears to be under control, the central bank unexpectedly raised interest rates in April to support the rupiah, which has fallen to a four-year low against the greenback.
The rupiah’s rebound lasted only a few weeks. The currency is again at a four-year low, falling 1.6% last week in one of its biggest weekly losses since the pandemic.
On the political front, Indian markets will make their first assessment of Prime Minister Narendra Modi’s chances of winning the presidential election.
Exit polls released this weekend after six weeks of voting showed Modi’s allies were expected to gain 303 seats in the 543-member House of Representatives and secure the two-thirds majority needed to introduce constitutional changes.
Here are some key developments that could provide further direction for the market on Monday:
– Manufacturing PMI – China, Japan, Korea (May)
– Indonesia Inflation (May)
– India exit poll reaction
