© Reuters. FILE PHOTO: A man walks under an electronic screen showing Japan’s Nikkei share price index inside a conference hall in Tokyo, Japan June 14, 2022. REUTERS/Issei Kato
By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever
It seems like an age away, but whatever optimism investors had at the start of the quarter for a broad-based market rebound looks to have completely evaporated.
Friday’s slump on Wall Street, spike in the 10-year U.S. bond yield above 4% and the Fed’s implied terminal rate to almost 5%, and dollar surge to fresh 32-year peaks against the yen near 150.00 saw to that.
Asian markets on Monday will likely get clobbered.
It is becoming increasingly clear that the Fed will not stop raising rates until it sees hard evidence that inflation is falling. It’s safe to say September’s inflation report was not what policymakers – or investors, businesses or households – were hoping for.
On top of this macro gloom, micro and market conditions are deteriorating too.
The U.S. earnings season goes up a gear this week, with Tesla, J&J (NYSE:), BofA and Goldman among those reporting. Analysts expect third-quarter earnings per share growth for the broader index excluding energy to fall 2.6%, Refinitiv data shows.
Liquidity across a range of markets, particularly bond markets, is worryingly thin. The UK gilt market has come under the spotlight, but even U.S. Treasuries might not be immune from dysfunction, analysts say.
All in all, it is an extremely challenging backdrop for investors, even if many assets might seem extremely cheap. The trouble is, they can get even cheaper before recovering.
Asian markets have all that to digest on Monday, as well as Chinese President Xi Jinping’s address to the Communist Party Congress on Sunday, which focused heavily on security issues.
Meanwhile, the regional data front this week sees the release of Q3 GDP, unemployment, trade, house prices, FDI and an interest rate decision from China, and Japanese inflation and Australian central bank meeting minutes.
Key developments that could provide more direction to markets on Monday:
South Korea trade
Japan tertiary activity index (August)
New York Fed manufacturing index (October)