Measured Powell, China breather set scene for Q4 open

Morning Bid Asia

A look at the day ahead in Asian and global markets

By Jamie McGeever, Columnist, Global Finance & Markets

Data refreshes every time you open this email. For more Asian market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

Investors in Asia kick off the new quarter on Tuesday catching their breath from an astonishing end to the third quarter that saw Chinese stocks clock their best day since 2008 and Japanese stocks register one of their biggest falls in years.

On top of that, Fed Chair Jerome Powell on Monday dampened some of the more fervent hopes for future rate cuts, saying his base case is for a further 50 basis points easing this year and that the central bank will reach its neutral rate "over time."

This pushed Treasury bond yields higher - most notably at the short end of the curve where the two-year yield leaped 10 basis points - and traders shifted expectations for November's Fed meeting closer to a 25 bps cut from 50.

Today's Market News

Graphics are produced by Reuters.

Asia data this week to paint fuller picture

Tuesday's economic calendar is packed with top-tier releases including Japanese unemployment, Indonesian inflation, South Korean trade, and a raft of purchasing managers index reports from across the Asia and Pacific region.

Of course, Powell's remarks weren't hawkish. But they were a reminder that perhaps some of the rate expectations built into market pricing had gotten a little extreme.

Wall Street closed in the green on Monday, rounding off a solid quarter that saw the S&P 500 reach multiple new peaks and increased rotation out of Big Tech into beaten down sectors and small cap stocks.

Investors in Asia on Tuesday will digest this and the remarkable market moves in the continent's two biggest economies the day before.

Chinese markets are now closed until Tuesday next week as the country celebrates Golden Week. The market break could not have been better timed.

Monday's 8% surge means Chinese stocks have risen by around a quarter since Sept. 23, when Beijing unveiled the first of a series of stimulus measures to support the economy and markets. A 25% increase, in a week, is nothing less than extraordinary.

Blackrock, the world's largest asset manager, has raised its tactical asset allocation for China to "modestly overweight" from "neutral."

Unsurprisingly, the equity market's historic rebound is pouring fuel on the burning question of whether China's stimulus will revive the economy. On that score, far more uncertainty abounds.

A fundamental issue is that lower borrowing costs and more ample market liquidity won't increase consumer demand in an economy dealing with a monumental property sector bust, the deleveraging that goes with that, and deflation.

Japanese stocks, meanwhile, will be looking to bounce back from a near-5% slump on Monday, as investors gear up for an Oct. 27 election. That was the biggest fall since the Aug. 5 volatility shock, and the third biggest since the early days of the COVID-19 pandemic in March 2020.

The yen's slide back towards 144.00 per dollar should help.

Graphics are produced by Reuters.

Key developments that could provide more direction to markets on Tuesday:

Japan unemployment (August)
Indonesia inflation (August)
PMIs - Australia, India and others (September)

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

Sponsors are not involved in the creation of newsletters or other Reuters news content. Advertise in this newsletter or on Reuters.com

Morning Bid is sent every weekday morning. Think your friend or colleague should know about us? Forward this newsletter to them. They can also sign up here.

Want to stop receiving this email? Unsubscribe here. To manage which newsletters you're signed up for, click here.

Terms & Conditions and Privacy Statement