By Jamie McGeever
Nov 20 (Reuters) – A look at the day ahead in Asian markets from financial markets columnist Jamie McGeever.
China’s latest interest rate decision will be the main focus of Asian markets on Monday, with investors also eyeing Thailand’s third-quarter GDP and trade data from Malaysia and Taiwan.
Trading activity and volumes in Asia will be lighter than normal this week due to the US Thanksgiving holiday at the end of the week, but sentiment remains good due to general easing in financial conditions.
Bond yields worldwide are falling, led by Treasury yields as inflation pressures ease, economic activity cools and oil prices decline.
For the most part, investors are riding the wave – world stocks, Wall Street and Japan’s Nikkei rose for the third consecutive week last week, and Asia ex-Japan rose 3%. However, China’s blue chip CSI300 index fell for the first time in four weeks.
Equity and currency market volatility is well stable, and while bond market volatility is higher, it is in the middle of its range compared to last year except for the US banking shock in March.
On Monday, the People’s Bank of China is widely expected to leave benchmark lending rates unchanged. All 26 market observers in a Reuters poll expect one-year and five-year loan key rates to remain steady at 3.45% and 4.20%, respectively.
Most economists believe China’s economy needs more stimulus, but this would add downward pressure on the yuan and risk increasing capital and portfolio outflows.
Goldman Sachs analysts estimate net foreign exchange outflows totaled $41 billion in October, compared with $75 billion in September. This is an outflow of more than $100 billion in just two months.
This is why Beijing’s policy decisions are so important: as long as the interest rate spread remains heavily leveraged against the Chinese yuan, these outflows will continue.
But officials remain committed to supporting the yuan and keeping it away from the 7.30 per dollar level. Their efforts are working – on Friday the dollar fell below 7.21 yuan for the first time in three months.
Also on Monday, Bangkok data is expected to show that Thailand’s economy grew at a 2.4% annual rate in the third quarter, up from 1.8% in the previous quarter, boosted by exports and tourism. On a quarterly basis, GDP is expected to grow by a seasonally adjusted 1.2%, up from 0.2% in the second quarter.
Later in the week the Reserve Bank of Australia will release minutes of its November 7 policy meeting and Bank Indonesia is expected to keep its key interest rate steady at 6.00%. But perhaps the most important release on Friday will be Japanese consumer price inflation – this could be key for Bank of Japan policy.
Core annual inflation is expected to rise to 3.0% in October from a 13-month low of 2.8% in September, according to a Reuters poll.
Here are the key developments that could provide greater direction to the market on Monday:
– China interest rate decision
– Thailand GDP (Q3)
– Malaysia Business (October)
(By Jamie McGeever; Editing by Dianne Craft)