A Look at the Day Ahead in Asian Markets

By Jamie McGeever

(Reuters) – Investors in Asia kick off the new quarter on Tuesday, catching their breath from an astonishing end to the third quarter. Chinese stocks clocked their best day since 2008 while Japanese stocks experienced one of their largest falls in years.

On Monday, Fed Chair Jerome Powell dampened fervent hopes for future rate cuts, stating his base case involves a further 50 basis points easing this year, and that the central bank will reach its neutral rate “over time.”

This announcement pushed Treasury bond yields higher, notably at the short end of the curve, where the two-year yield leaped 10 basis points. Traders are now shifting expectations for November’s Fed meeting, looking closer to a 25 bps cut from 50.

Tuesday’s economic calendar is packed with key releases including:
– Japanese unemployment
– Indonesian inflation
– South Korean trade data
– Purchasing managers index reports from across Asia and the Pacific region.

While Powell’s remarks were not overtly hawkish, they served as a reminder that some rate expectations may have become a bit extreme in the market pricing.

Wall Street ended the previous day in the green, marking a solid quarter that saw the S&P 500 reach multiple peaks and a shift from Big Tech to beaten-down sectors and small-cap stocks.

Asian investors will absorb these dynamics alongside the remarkable market moves from the continent’s two largest economies observed earlier.

Chinese markets are now closed until Tuesday next week for Golden Week celebrations, perfectly timed after Monday’s 8% surge that brought Chinese stocks up about 25% since September 23, when Beijing announced initial stimulus measures.

Blackrock, the world’s largest asset manager, has raised its tactical asset allocation for China from “neutral” to “modestly overweight.”

While the equity market’s historic rebound raises questions about the effectiveness of China’s stimulus in reviving the economy, uncertainty looms. The fundamental challenge remains that lower borrowing costs and increased liquidity may not boost consumer demand in an economy grappling with a devastating property sector bust and deflation.

Japanese stocks, conversely, are looking to recover from a nearly 5% decline on Monday, with investors gearing up for an Oct. 27 election—the biggest fall since the August volatility shock and the third-largest since the early pandemic days in March 2020. The yen’s slide towards 144.00 per dollar should aid recovery.

Key Developments for Asian Markets on Tuesday:
– Japan unemployment (August)
– Indonesia inflation (August)
– PMIs – Australia, India, and others (September)