By Jamie McGeever
(Reuters) – A look at the day ahead in Asian markets.
A hugely crucial week for global markets begins as investors in Asia brace for volatile trading in Japanese assets on Monday after Prime Minister Shigeru Ishiba lost his parliamentary majority in the country’s general election.
Ishiba’s Liberal Democratic Party has ruled Japan for almost all of its post-war history. So the initial market reaction to a political earthquake of this magnitude could lead to a sell-off in the yen and Japanese equities, as well as higher Japanese government bond prices.
More generally, the shock waves could undermine political stability and continuity. Many analysts say the Bank of Japan should implement monetary policy. The BOJ will set the interest rate on Wednesday.
The BOJ’s decision is one of the key events this week that could go a long way in shaping market and investment trends for the rest of the year. Five of the ‘Magnificent Seven’ megacap US tech giants will report corporate results this week, and US non-farm payrolls for October will be released on Friday.
Staying in Asia, purchasing managers’ index data this week will provide the first insight into how economic activity across the continent has held up in October, particularly in China. Is it too early for Beijing’s recent stimulus measures to have had any effect?
Probably. And the impact on the market is understandably starting to fade as well. Chinese shares rose 0.8% last week, consolidating after a rollercoaster few weeks.
Meanwhile, figures on Sunday showed industrial profits in China fell 27.1% in September from a year earlier, the steepest decline this year.
Asian shares weakened more broadly last week, with the index down almost 2%, its third weekly decline in a row. Japan’s benchmark fell 2.7% for its second straight weekly loss as investors reduced risk exposure ahead of Sunday’s general election.
Compare that to the Nasdaq, which got a huge boost from Tesla’s (NASDAQ:) remarkable rally following its third-quarter earnings results. The tech-heavy index rose for the seventh straight week, and it has risen in all but 15 of the past year.
The price fell slightly, although it is still at the record level of the previous week, while the Dow Jones lost more than 2%.
Barclays’ emerging markets team summed up the general mood quite well: “The dollar is likely to continue to lead, and US yields are likely to remain high, creating a somewhat painful backdrop for emerging market assets,” they wrote on Friday.
But with so many risks looming, not least the US presidential election on November 5, there may be a limit to how high government bond yields can rise this week.
Here are the key developments that could give markets more direction on Monday:
– Consequences of the Japanese elections
– Hong Kong trade (October)
– Thailand trade (October)
