It looks like a quiet start to the week in Asia on Monday, but don’t be fooled – it may be the calm before the storm.
A raft of regional economic indicators including Japanese unemployment and PMIs from China, Australia and India, as well as U.S. non-farm payrolls and U.S., euro zone and UK interest rates decisions will surely provide fireworks later in the week.
In that light, investors on Monday may opt to reduce exposure to the glut of event risk, especially with month-end approaching and given how far stocks have risen since the turn of the year.
The MSCI Asia ex-Japan index is at a nine-month high and up more than 30 per cent from the October low. It has risen in 11 of the last 13 weeks and is on course for a monthly gain of 11 per cent.
That’s comfortably outperforming the S&P 500, euro zone and UK stocks, Japan’s Nikkei 225 and the MSCI World index, so a little profit-taking may be on the cards.
In India, Gautam Adani faces a critical day on Monday with his flagship company’s $2.5 billion share sale’s second day of bidding overshadowed by a $48 billion rout in the Indian billionaire’s stocks sparked by a U.S. short seller’s report.
China reopens after the Lunar New Year holiday, so trading volumes in Asia will return to something resembling normal. Just in time for a potentially choppy 24-hour period over Wednesday and Thursday when the Federal Reserve, European Central Bank and Bank of England announce their latest policy decisions.
The debate over U.S. recession or soft landing, and Fed “pivot” or “higher for longer” may acquire more clarity after Fed Chair Jerome Powell’s press conference on Wednesday. Right now, investors’ glasses are half full.
Wall Street’s “fear index” – the VIX volatility index – on Friday fell below 18.0 for the first time in over a year, and perhaps a little under the radar, U.S. bond market volatility is now its lowest since last June.
On the Asian data front this week, Chinese purchasing managers indices will give the most up-to-date snapshot of how the region’s largest economy is emerging from zero-COVID restrictions, while Japanese unemployment and retail sales figures are out on Tuesday.
There is a deluge of Japanese earnings reports this week, from corporate titans including SoftBank, Sony, Sumitomo and financial institutions Mizuho, Daiwa and Mitsubishi UFJ.
Three key developments that could provide more direction to markets on Monday are New Zealand trade (December), Germany GDP (Q4) and Euro zone sentiment indicators (January).