Global Market Pulse: Asian Stocks Volatile Amid Weak China Data and Optimism Over Long-Term Bond Issuance

Asian stocks fluctuated between gains and losses in Monday trading as market sentiment was swayed by weak Chinese data and optimism over reports that the country will soon issue extraordinary long-term bonds.

Overall, the Asian stock market was dominated by sellers at the start of the week. Hong Kong’s stock index reached its highest level since August, while shares listed on China’s domestic market mostly declined. Japanese and Australian stock indices also fell. According to Bloomberg, China’s plan to issue special long-term bonds worth 1 trillion yuan ($138 billion) will start on Friday and will eventually include bonds with maturities of 20, 30, and 50 years.

News of the bond issuance plan improved market sentiment following weak Chinese data released over the weekend, which initially led to a decline in stocks. Additionally, a report suggesting that President Biden intends to increase tariffs on Chinese electric vehicles intensified concerns about further trade tensions between the US and China.

It can be said that the outlook for China’s economic growth remains uncertain given the economic data and the US’s efforts to reduce imports from China. With the upcoming elections and the potential for a change in government, the White House’s new decision, likely aimed at attracting some votes from the opposing team, indicates that regardless of who wins the US elections in November, we will see escalating US-China trade tensions.

The Bloomberg Dollar Index and the benchmark 10-year Treasury bonds showed little change. Across the ocean, Japanese bonds declined after the Bank of Japan purchased a smaller amount of government debt compared to the previous auction.

Market Drivers for the Week ahead

Investors are scrutinizing comments from US officials for signs of how long the Federal Reserve will keep interest rates at higher levels. Dallas Fed President Lorie Logan said last week that it is still too early to think about lowering borrowing costs, while Michelle Bowman, another member of the Federal Open Market Committee, stated that she does not expect the Fed to cut rates in 2024.

Key potential factors for the markets this week include China’s policy rate decision on Wednesday and the release of US inflation data on the same day.

Confidence in the Chinese market is growing, even if economic indicators do not fully support this optimism. It appears that the movements in China’s financial markets are being driven more by technical factors than fundamental ones.

Weak Chinese data put pressure on oil prices on Monday, but commodity traders are also awaiting the OPEC+ meeting on supply policy. Iraq’s Oil Minister, Hayyan Abdul Ghani, initially stated over the weekend that Baghdad had reduced production sufficiently and would not agree to further cuts. However, he later said that any decision is a matter for OPEC, and Iraq will adhere to whatever the group decides. OPEC+ will meet on June 1.

Elsewhere, the Eurozone is set to release reports on inflation and growth, while several Federal Reserve officials, including Chair Jerome Powell, are scheduled to speak.

Australia Business Confidence, Monday: 

This index measures the optimism or pessimism of business managers regarding the economic outlook. Higher figures indicate improved business conditions, leading to increased investment and employment, which strengthens the Australian dollar. Conversely, reduced optimism weakens the Australian dollar.

New Zealand Food Prices and Inflation Expectations, Monday: 

This report examines changes in food prices, which can serve as a leading indicator for overall inflation. Inflation expectations reflect economic agents’ views about future inflation.

India Trade and Consumer Price Index (CPI), Monday: 

These reports include data on India’s trade balance and consumer inflation rate. The trade balance shows the country’s imports and exports, while the CPI indicates changes in consumer goods and services prices, measuring inflation.

Eurozone Finance Ministers Meeting in Brussels, Monday: 

This session involves discussions on economic and financial issues in the Eurozone. Decisions and statements issued can significantly impact regional financial and economic markets, causing fluctuations in the euro.

Australia Budget 2024-25, Tuesday: 

Australia’s annual budget includes the government’s spending and revenue plans. Budget decisions can greatly impact economic growth, employment, and interest rates.

Japan Producer Price Index (PPI), Tuesday: 

This index shows changes in the prices of goods and services sold by producers. The PPI is a leading indicator for consumer inflation.

Germany CPI and ZEW Survey Expectations, Tuesday: 

The CPI reflects changes in consumer goods and services prices in Germany. The ZEW survey includes financial experts’ views on the current and future economic conditions in Germany. Continued control of inflation could signal a potential reduction in interest rates, affecting the euro.

UK Jobless Claims and Unemployment, Tuesday: 

This report includes the number of unemployed individuals claiming unemployment benefits and the unemployment rate. The unemployment rate is a key indicator of a country’s economic health. Improved employment status post-recession could boost the pound.

US PPI and Bank Officials’ Speeches, Tuesday: 

This index shows changes in the prices of goods and services sold by producers in the United States and is a leading indicator for consumer inflation. Speeches by Fed Chair Jerome Powell and ECB Governing Council member Klaas Knot could provide insights into future monetary policies, significantly impacting financial markets.

China Interest Rate Decision, Wednesday: 

The interest rate decision by the People’s Bank of China can significantly impact the domestic economy and global markets. Lower interest rates can help stimulate economic growth.

Eurozone Industrial Production and GDP, Wednesday: 

These reports indicate the health of the Eurozone’s industrial sector and overall economy. Increased industrial production and GDP signify positive economic growth.

US CPI, Retail Sales, Business Inventories, and Empire Manufacturing Index, Wednesday: 

These reports provide information on consumer inflation, changes in retail sales, business inventories, and the economic conditions of the manufacturing sector in the Empire region. If US manufacturing slows down, the dollar index will face more pressure. Otherwise, it will continue to stabilize under the influence of ongoing contractionary policies.

Australia Unemployment, Thursday: 

This report includes the unemployment rate and changes in the number of employed and unemployed people in Australia. A lower unemployment rate indicates improved economic conditions.

Japan GDP and Industrial Production, Thursday: 

These reports indicate the overall health of Japan’s economy and its industrial sector. Growth in GDP and industrial production signals positive economic growth.

China Property Prices, Retail Sales, and Industrial Production, Friday: 

These reports include changes in property prices, retail sales levels, and industrial production in China. These indicators reflect the overall economic situation in China. Improvement in these indicators could benefit Asian and Oceanic currencies, despite the uncertainty about China’s economic growth.

Eurozone CPI, Friday: 

This index shows changes in the prices of consumer goods and services in the Eurozone and is a key indicator for inflation. The market and the European Central Bank are closely watching these reports to speculate on the timing of interest rate cuts. Continued inflation control in line with forecasts could strengthen the possibility that the ECB will reduce interest rates sooner than the US, increasing selling pressure on the euro.