By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
Global markets will be overwhelmingly dominated by the US presidential election and interest rate decision later this week, so Monday’s activity could be driven by position adjustments as investors take into account the latest polls, news flow, earnings figures and economic indicators.
If Friday’s moves are any guide, Monday promises to be something of a rollercoaster with no clear, unifying signal. Bond yields shot to new multi-month highs amid election and fiscal turmoil, reversing an earlier decline due to surprisingly weak U.S. employment data, and the dollar strengthened considerably.
But Wall Street brushed aside any concerns about the political situation or shortages. Holding on to strong earnings data and renewed belief that the Fed will cut rates on Thursday (and likely next month), stocks rose strongly.
With the US elections so close and bond yields rising not just in the US but around the world, can this ‘risk on’ sentiment prevail?
The ‘MOVE’ implied volatility index for US government bonds is the highest in more than a year, and UK government bond yields are also the highest in a year. The ‘vigilante union’ suffered some whiplash on Friday after the American wage figures, but quickly took the lead again.
Traders in Asia will therefore have to weigh on Monday whether to go along with optimistic US earnings figures and optimism about interest rate cuts, or accept rising interest rates, a stronger dollar and increased nervousness on the eve of the US elections.
Last week was a challenge for the Asian markets. The MSCI Asia/Pacific ex-Japan index fell for the fourth week in a row last week, with October’s 4.9% decline marking its worst month since August last year.
After inflows of $32.2 billion in September, Asia’s ex-Japanese equity funds have recorded “heavy redemptions” over the past three weeks, according to flow tracker EPFR. Last week, investors pulled more than $4 billion from equity funds in Asia excluding Japan, extending their longest streak of outflows since the fourth quarter of last year.
Much of this is due to outflows from Chinese funds, as some of the hyper-excitement fueled by Beijing’s series of measures to support the domestic economy and markets cools.
But this week, attention will again focus on Beijing. China’s top legislative body, the National People’s Congress, will meet on November 4 and 8, with markets widely expecting the approval of more fiscal stimulus.
This week we also see the release of Chinese economic indicators, including trade and credit. Other highlights include interest rate decisions from Australia and Malaysia, GDP figures for Indonesia and the Philippines, and Toyota and Nissan earnings.
